Tax return for a sole trader
In India, sole proprietorship is a very common and well-known business style. Sole proprietorships are small, self-employed service providers or resellers who own and operate their own companies. A single person owns the company. This business form has the fewest legal, regulatory, and registration requirements, making it the most straightforward in terms of incorporation and setup. This company model has become extremely popular among small business owners due to its simple structure and slab-based tax benefits. Because the income of a sole proprietorship firm is the same as the proprietor’s, it is added to the proprietor’s income, and the individual’s tax return is submitted using the applicable slab rates.
What Is a Tax Return?
A tax return is a form or form that is filed with the IRS to report income, spending, and other tax information. Tax returns enable taxpayers to determine their tax liability, plan their tax payments, and receive refunds for overpayments. Individuals or businesses having a reportable income, such as wages, interest, dividends, capital gains, or other earnings, must file tax returns annually in most nations.
What Is a Sole Trader and How Does It Work?
A sole proprietorship, often known as a sole trader or proprietorship is an unincorporated business with only one owner who pays personal income tax on the business’ profits.
Due to a lack of government oversight, a sole proprietorship is the easiest type of business to start or shut down. As a result, these types of enterprises are extremely popular among sole proprietors, independent contractors, and consultants. Because a distinct business or trade name isn’t required, many single owners operate under their own identities.
Tax return for the sole trader
You’ll need to file a Self Assessment tax return if you’re a self-employed individual who owns your firm. This allows you to pay the correct amount of income tax and national insurance afterward.
It can be intimidating to file your taxes for the first time. But it doesn’t have to be that way. GoSimpleTax is here to assist you to understand how to prepare your Self Assessment tax return as a sole trader so you can focus on your business rather than worrying about taxes.
Are you prepared? Let’s get started with a cup of tea…
REGISTER FOR SELF ASSESSMENT
If you haven’t already done so, you’ll need to register as a single trader with HMRC. If any of the following points apply to you, you’ll need to do this:
- In the tax year, you earned more than £1,000 through self-employment (6 April 2020 to 5 April 2021)
- You want to be eligible for benefits by paying Class 2 National Insurance contributions voluntarily.
- You’ll need to show proof that you’re self-employed.
Then you must notify HMRC that you will be paying your tax through Self Assessment. Fortunately, enrolling is simple: you may do it either online or by filling out an on-screen form, printing it, and mailing it.
You’ll be issued a 10-digit code that uniquely identifies you as soon as you register for Self Assessment. A Unique Taxpayer Reference (UTR) number is what this is called. We recommend having this handy for the next steps because you’ll need it while filling out your tax return.
Keep in mind that you must register for Self Assessment by the 5th of October in the second tax year of your business. So, if you became a self-employed worker between April 6, 2020, and April 5, 2021 (i.e. the 2020/21 tax year), you have until October 5, 2022, to register.
COMPLETE AND SUBMIT YOUR SELF ASSESSMENT TAX RETURN
It’s time to complete and submit your tax return once you’ve acquired all of the necessary information. Take a deep breath — it’s not as frightening as it sounds!
If you’d rather do things the old-fashioned way, you can fill out the SA100 tax return form, print it out, and mail it to HMRC. The deadline to submit a paper tax return is October 31st.
You can alternatively go the modern route and file your Self Assessment tax return online (this is our preferred approach for reasons that will become evident later…).
While the form or forms may appear daunting at first, you will only need to complete the portions that are relevant to you. Here, HMRC’s guidance notes on “How to fill in your tax return” may be useful.
DEADLINES AND PENALTIES FOR LATE SUBMISSIONS
The deadline for filing online tax returns, as with all self-employed individuals, is midnight on the 31st of January following the end of the tax year. This is also the deadline for paying any taxes you owe, as well as your first payment on account (advance payment towards your bill for the next tax year).
The deadline for paper tax returns is October 31st at midnight (meaning you get an extra three months if you do it online). On the 31st of July, there is usually a second payment on account deadline.
CLAIM YOUR ALLOWABLE EXPENSES
Penalties, of course, are something you should avoid at all costs. We’re guessing you’re looking for ways to save costs anywhere you can. As a sole trader, you have the good fortune of being able to claim a variety of company expenditures.
The following are some of the most typical expenses claimed by lone traders:
- Commodities and raw materials
- Fees for professionals (such as lawyers and accountants)
- Expenses for a home office (like working from home allowance and stationery)
- Automobile expenditures
These expenses can be deducted from your total taxable income if they were incurred primarily for business purposes, which could result in a lower tax burden.
RECORD-KEEPING
One of your key tasks as a lone trader, aside from filing Self Assessment tax reports and paying Income Tax on your profits, is bookkeeping. This is simply a log of your company’s daily transactions, such as bank statements and receipts. It’s a good idea to keep these on hand in case HMRC decides to investigate you. This way, you’ll have all of the necessary evidence on hand.4
