What is a sole trader?
As a sole trader, you will register yourself as self-employed with HMRC and
will run your own business as an individual, which means that you are personally liable for any debts or losses made.
- Keeping business records and proof of expenses.
- Filing your self-assessment tax return.
For more information on starting up, read our How to set up as a Sole Trader page.
How much will my take home pay be?
The amount that you take home will depend on a number of different factors, such as:
Just like any other worker, you will need to pay tax on your earnings, the only difference being that, as a sole trader, you are taxed annually as opposed to PAYE.
And, unlike an employee, you will need to calculate this figure and pay independently through your self-assessment tax return.
There are two types of NI:
- Class 2 – this is applicable on profits over £6,725 per year, at a rate of £3.15 a week.
- Class 4 – applicable on profits over £11,909 per year.
The rates are:
– 10.25% on profits between £11,909 and £50,270
– 3.25% on profits over £50,270
There’s also income tax to take into consideration – the amount you’ll pay each year depends on how much of your income is above your personal allowance and how much falls within each tax band.
The standard personal allowance is £12,570, which means you can earn up to this amount without having to pay tax.
The rates are as follows:
- Basic rate – 20% (if you earn between £12,571 and £50,270)
- Higher rate – 40% (between £50,271 to £150,000)
- Additional rate – 45% (over £150,000)
A benefit of self-employment is that you are able to claim back on certain expenses and therefore reduce your tax bill at the end of each year.
Typical allowable expenses include:
- Travel costs – such as fuel, parking, hire charges, train/bus/taxi/air fares, accommodation while away for business reasons.
- Office costs – such as stationary, printer ink/cartridges, postage, phone/mobile/internet bills.
- Clothing expenses – should you require specific protective wear, a uniform or costume.
- Financial costs – such as hiring an accountant.
- A proportion of costs for your heating, electricity, Council tax, mortgage interest/rent and internet/telephone use, if you work from home.
For more information on this, visit our page Sole Trader Expenses.
Self-assessment tax return
You will need to include all of the above information when completing your tax return in order to find out how much your take home pay will be.
It’s always worth setting a certain amount aside each month to ensure you have enough to cover your owed tax when it’s due by the 31st of January each year.
If you need help with your self-assessment, then we at Dolan specialise in providing accountancy services for sole traders and the self-employed.
Read our Self Assessment Tax Returns page for further information on this.