Sole Traders and Partnership NIC and Income Tax
When starting up the business you will need to register as self-employed with HM Revenue & Customs and fill in form CW1- “Becoming self-employed and registering for National Insurance contributions and/or tax”. This form also enables registry as a sole-trader or a partnership; also you are able to inform them of your intentions of gaining employees ensuring that you pay their contributions. If this is not registered within three month then he is at risk of occurring a fine.
National Insurance Contributions are paid at fixed rate of £2.10pw- Class 2 NIC; in the 2006/2007 period however if you earn less than £5,035 you are able to get small earnings exemption. If the sole-trader reaches the threshold of £33,540 then he will have to pay Class 4 NIC this tax band is charged on a percentage.
Also sole traders must also pay Income Tax they do this by filling in the self-assessment form which also allows the Inland Revenue to calculate Class 4 NIC; this is simple to fill the information needed is usually costs, sales and profits; if turnover is above £15,000 you may have to keep a detailed profit and loss and balance sheet.
Basic records will normally include:
- A record of all your sales, with copies of any invoices you have issued
- A record of all your business purchases and expenses
- Invoices for all your business purchases and expenses
- Details of any amounts you personally pay into or take from the business
- Copies of business bank statements
Sole traders and partnerships have to pay tax even if they don not take money out of the organisation. This can be over come by becoming a limited company however the paperwork is more extensive, limited companies are able to do this because corporation tax rates are much lower than income tax rates.
Business which make more than £60,000 have to register for a VAT number they also need to charge their customers VAT, you also need to fill in the relevant VAT returns and send VAT payments to HM Revenue & Customs. VAT is paid on its purchases this is called input tax they also charge tax on sales this is called output tax; if a business gains more output tax from what it pays in input then it must pay the difference, if the business receives more input than output then HMRC will pay the difference. Generally the VAT is charged at 17.5% however many products and services may receive lower VAT or may be except.
Read more about this topic: Business Ownership Within England And Wales
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