The 31st January is the self assessment tax return deadline for both sole traders and partnerships. If you are the owner of a new sole trade or partnership you may not have submitted one of these tax returns yet, but don’t worry, we have all the information you need.
Why Sole Traders and Partnerships?
Sole traders and partnerships do not submit corporation tax returns every year like Limited companies would. The tax on your profits will not be directly charged to the business, the tax also will not appear on your financial statements, however it will be charged directly to you on your self assessment tax return.
So how will I be taxed on my profits?
Every year you will need to fill out a self assessment tax return in your name, this will have to include your business income and expenses and any other income you may have received personally. Basic rate for tax on profits is 20%, however if your profits reach above a certain threshold you may have to pay class 2 and class 4 national insurance. If you own a partnership then your profits will be split between the partners in accordance with your partnership agreement.
Other Useful Information
There are lots of things you may need to know when filling out a self assessment tax return but some things are a lot more common than others. Below I have listed some of the more common occurrences:
• Any tax you have paid through the payroll in another employment will be taken off your tax liability.
• Everybody will have a personal allowance which is £11,500 for 2017/18 tax returns, this will be taken off your overall profits and income before your tax liability is calculated.
• Any dividends received from other Limited companies will also need to be included on your tax return, however you will receive a separate dividend allowance on this, for the 2017/2018 tax year the dividend allowance is £5000