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Sole Trader FAQS

Crunch Sole Trader FAQs

 

If you have a question isn’t answered here, or you’d like to clarify anything further, don’t hesitate to get in touch with your Client Manager.

 

How do I pay myself?

 

In the sole trader world paying yourself is called ‘drawings’. You’ll do this by transferring money from your business account to a personal one.

 

What am I taxed on?

 

You are taxed on the profits of the business, not what you take out in drawings.

 

For example, if you have a turnover of £25,000 and expenses are £5,000, profits will therefore be £20,000.

 

How much tax will I pay? 

This will depend on your profits your business makes. For more information check out our sole trader tax rates page.
 

What is a Self Assessment? 

Self Assessment is HMRC’s method of collecting Income Tax and National Insurance from  the self-employed.

It is an online form where you declare your income to HMRC for a given tax year, so they can calculate how much tax you owe. 

Do I have to complete a Self Assessment tax return?

If you have been a sole trader for any period of the tax year in question, you must complete a Self Assessment tax return to ensure you're paying the correct amount of personal tax, and getting the right personal allowances.

When is my Self Assessment due? 

The Self Assessment is due by the 31st January following the end of the tax year you need to pay tax for.

When is the tax I owe due to HMRC?

This is due by the same date, the 31st January following the tax year for which it owed. This is why it’s beneficial to file  your Self Assessment early, allowing you to plan when to pay the tax you owe. 

You might also need to make payments on account. These are two payments due on 31st January and 31st July, each payment amounting to half the tax you’ll owe for the next year.  

Learn more about payments on account.  

What are the main expenses I can claim? 

Your business  will naturally incur running costs. These can be deducted from profits provided they are allowable business expenses. This does not include money taken out of the business to pay for personal expenses.  

What about travel costs and business mileage? 

You need to be particularly careful when claiming travel and food costs for getting to and from work.  

The general rule of thumb for sole traders is that you can claim if the travel occurred in the natural course of business. 

Can I put my car / vehicle through my business? 

The quick answer is possibly yes, if you’re travelling for business. There are two methods of using your vehicle for business. 

When is it worth forming a limited company? 

You should consider going limited if:

 Your profits exceed £20,000 each year. You could increase your take home pay
  • You want to limit your personal liability if something was to go wrong

  • Your business is growing and want to prepare for employees

  • You have a business name you want protected  

Can I pay into a pension? 

This can be done from personal funds. The lower limit for this is either your total gross salary or the sum of £2,880 (whichever is lower); while £40,000 is the maximum amount you can get tax relief on.   

This is a tax efficient way of investing money because you normally get tax relief. For more information on how to handle your pensions it’s best to speak to a financial advisor.

Do I need a separate bank account?

For the Crunch service, you must have a separate business bank account. This is designed to make it easier when recording business transactions.

Last Updated: 11 Jul 2018 09:13AM BST

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