Many people aspire to be self-employed, and if you are an individual running your own business, you are considered a “Sole Traders.” There are many benefits to being a sole trader, such as the ability to set your own schedule and achieve a good work-life balance. Additionally, you get to keep all of your business’s profits after taxes. But you are personally responsible for any losses and ensuring that you pay the correct amount of income tax and national insurance.

It is crucial to know how much tax you are required to pay and complete an annual self-assessment tax return as a sole trader. Registering for self-assessment is easy, but it is essential to do so each tax year. As a sole trader, you are also responsible for paying your own national insurance contributions.

Recent research has indicated that over 75% of UK sole traders are uncertain about the tax and VAT thresholds that apply to them. This lack of knowledge could be costing them too. A survey of 800 sole traders conducted by Account-Ease revealed several gaps in the financial knowledge of small businesses in the UK. We are here to fill those gaps for you, allowing you to focus on running your business.

• 3 in 4 sole traders are unsure of the amount they would need to earn to pay a higher tax rate of 40% (£50,271)
• Less than 1 in 10 (9%) know what could happen if they didn’t pay their tax bill
• 1 in 50 thought nothing would happen if they did not pay their tax bill

Which sole traders are the least informed?

Based on the survey findings, lawyers appear to have the highest knowledge regarding when they should pay a higher income tax rate. While retailers are the least informed, with only 13% providing the correct answer.

Furthermore, the survey revealed that only 31% of sole traders are aware of the deadline for submitting a self-assessment tax form. With legal professionals being the most knowledgeable, as 42% of them knew about the January 31st deadline.

Sole traders are not obligated to pay corporation tax, unlike limited liability companies. However, 73% of sole traders mistakenly believe that they are required to pay this tax.

Sole traders pay most tax since records began

Over the last two decades, there has been a notable surge in the number of individuals starting their own businesses and working as full-time self-employed professionals. As a result, sole traders are now paying the highest amount of tax ever recorded.

In January 2023, the self-employed sector paid a record high of £22 billion in income tax. Marking a one-third increase from the previous year.

Looking after your finances

The survey also revealed that 18% of sole traders have not made any pension contributions or saved for their future. The East of England had the lowest percentage of sole traders with pension schemes, with only 55% having one. Meanwhile, those in London and Wales were the most financially astute, with 92% having a pension pot.

Additionally, 21% of sole traders admitted to having no safety net saved for at least three months. Which is concerning given the current economic crisis. Although Welsh sole traders were found to be the most informed regarding pensions, they were the least likely to save. With one in three not having any funds put aside.

Regarding reinvestment, restaurants were the most likely to allocate at least 20% of their income back into their business. On the other hand, those in education were the least likely, with 25% not reinvesting.

Account-Ease offers a comprehensive accounting service for small businesses, with personalized assistance from dedicated accountants. They understand that every business has different needs, and provide tailored support to help clients save for the future. Take care of their finances, and achieve a work-life balance. With Account-Ease on board, business owners can focus on running their business with peace of mind that their finances are being handled by experienced professionals.

Joining Account-Ease

If you’re looking for a forward-thinking, tech-savvy accountant, switching to Account-Ease is so easy. We have vast experience working with businesses in a diverse range of industries and sectors. From tech start-ups to established SMEs, contractors, freelancers and locums – we’re able to support a wide range of small businesses and SMEs.

Our pricing is transparent with no hidden fees or surprises. Our sole trader accountancy package is just £50 + VAT per month.

Ready to join Account-Ease? Contact Us Now