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Sole Traders - Six #Tax Numbers You Must Know
1. 4 Years - If you are in the first 4 years of your business and make a loss, you can use this loss to reduce your tax bill in the previous 3 years, such as from the job you had before you set up your business. You will receive a tax refund.
2. £5,725 - If your profits are lower than £5,725, you don't have to pay the annual £140 Class 2 NI, unless you need a credit towards your state pension. Ask for a repayment for earlier years.
3. £7,755 - If your profits are higher than £7,755, you will pay 9% Class 4 NI. This gets you no state benefits and effectively increases your tax rate from the 20% income tax rate to a total 29% tax rate.
4. £25,000 - Because of the Class 4 NI mentioned in 3. above, this is roughly the level of profits you need where it is likely you should consider becoming a limited company. This is penalty wonderland and more complicated than a sole trader, so use a good accountant. At this profit level, their fees shouldn't outweigh the Class 4 NI saving.
5. £79,000 - If your TURNOVER in the last 12 MONTHS, reaches £79,000, most businesses must register for VAT. You might be making a loss but it's irrelevant.
6. £150,000 - If your turnover has exceeded £79,000, but lower than £150,000, you might benefit from being in the VAT Flat Rate Scheme. This saves administration but can also be very profitable. Even if your turnover is £Nil, you can register for VAT voluntarily and enter the Flat Rate Scheme.