Most people will start their own business by becoming a Sole Trader. Most small business are registered as Sole Traders with very few making the jump to being a Limited Company, simply because the tax benefits and accounting responsibilities are significantly easier (not necessarily better, but easier).
However, those that make the jump to becoming a Limited Company will find filing their accounts more challenging, but with the possibility of a higher reward. Limited Companies can register for VAT (either voluntarily or because they hit the VAT threshold) and other schemes which will allow them to save money on their taxes in one way or another.
One of the biggest differences between tax regulations for a Sole Trader and a Limited Company are the time periods they take place between. A Sole Trader’s tax year is relatively simple and can be quite easy to stick, whereas a Limited Company’s tax year is a bit more complex.
For today, we’re just going to cover the small business accounting year, specifically for Sole Traders.
Sole Trader Accounting Year
A Sole Trader has a few deadlines to stick to, however they’re easy enough to remember and some you only need to complete the once. One of the most important things to remember, however, is that your accounting year and tax year are not the same.
Your accounting year (which can also be referred to as your financial year) starts the day you start trading, not the day you first register as self-employed. This means you may register as self-employed in July but your financial year may not start until August. The easiest way to keep track of this is by simply marking which date you made your first sale.
It is highly recommended that you make your accounting year and tax year match, as then you will only have to remember one set of dates. As a Sole Trader, your tax year runs from 6th April until the 5th of April. A lot of accountancy software will only allow you to work in whole months, so HMRC allows Sole Trader’s to start their tax year on 1st April and end it on the 31st March and treat it the same as if it were the 6th and 5th of April.
You will also need to register for Self-Assessment registration from HMRC, and keep in mind whether you’re filing your accounts either online or in paper form. Here’s a table of the deadlines you will need to know:
| Action | Deadline |
|---|---|
| Register (or de-register) for Self-Assessment | 5th of October |
| Tax returns (if done by paper) | 31st of October |
| Tax returns (if done online) | 31st of January |
| Tax payment | 31st of January |
When you hand in your tax returns, you will also want to alert HMRC that you’re ending your financial year at the same time. This will mean your financial year will finish in April, the same time your tax year ends. Having your accounting year match your tax year means that you won’t have to pay tax twice during the same period of time (which can be a real pain).
It also makes your finances easier to register. The accounts you have to submit to HMRC are based on your financial year, but need to be handed in at the end of the tax year. Having your tax year and financial year match makes it easier to understand what finances should be included in what year.
If you’re looking to start a business but struggling with the complexities of tax and HMRC, why not try using a Zooconomics accountant? They’re experts in the field of small business taxes and have helped save small business owners thousands over the years.
For more information call 0800 0460 560