If you can’t find the answers you are looking for below, or on the Sole Trader Premium FAQ’s page, then please don’t hesitate to contact us.
Q. What is the advantage of being a Sole Trader?
As a Freelancer, Independent Contractor or Sole Trader you can benefit from the kind of flexible financial arrangements usually only enjoyed by shareholding directors of small limited companies. However, you don’t need to form a limited company and therefore avoid all the legal and administrative responsibilities that entails – which is great news! Sole traders can be around 15% better off than their PAYE counterparts. You can be self-employed in any type of industry, but typically self-employment is found in education, medical, IT, Industrial, construction and manufacturing fields.
Being self-employed, you are paid gross, without any deductions for tax or NI. However, you must hold back around 25% of your earnings to cover this. You can use various business expenses to reduce your tax bill when filing your return.
Q. How do I register and work as a Sole Trader?
More good news – it’s not difficult. If you are new to self-employment you have 3 months to inform HMRC that you are running your own business. You must register to pay Class 2 NI. You will receive an HMRC tax return in April each year and have until 31st January of the following year to pay your tax (although you could be assessed every 6 months in arrears).
Q. How do I invoice my clients?
We will take care of this on your behalf. You will simply need to provide us with your timesheets or confirmation of the hours you have worked for your client(s) and we will either invoice them directly, or via your recruitment agency (if applicable).
Q. How do I get paid?
When we have received funds from your client/agency, we will pay your money directly into your bank account on the same day.
Q. How do you confirm payments made to me?
If you are registered for our online portal you can access your payment information at any time and view what payments have been processed for you. Otherwise you will receive a remittance slip by email or post with a full breakdown of your earnings, you will also receive a free text message confirming your payment. This informs you when the funds should clear in your account. Texts are only available where we have a record of your mobile number.
Q. Is there a benefit for referring friends and colleagues?
Yes. If you introduce a friend or colleague to our payroll services and they join for a minimum period of 6 weeks you will receive a bonus of £75 per person you refer.
Q. What happens if I get a permanent job or don’t want to be self-employed anymore?
If you don’t want to be self-employed anymore, or you go back into full-time PAYE employment, simply let us know and we will suspend your account with us and any associated services.
Q. What taxes/liabilities do I have to pay?
As Sole Trader you will be eligible to pay tax on the income you make from self-employment. You will have to pay class 2 National Insurance Contributions (NIC’s) as standard and in addition you may be liable for Class 4 NIC’s on any profits you make.
Q. How much National Insurance do I have to pay?
As at January 2012 the rates are:
•Class 2 NIC’s are paid at a flat rate of £2.50 a week. From April 2011, your Class 2 NIC’s payments will become due on 31 January and 31 July, the same as a Self Assessment tax bill. You pay Class 2 NIC’s either monthly or six monthly by Direct Debit, this will require completing a Direct Debit form, which we can send you if you wish.
If your profits are expected to be less than £5,315 you may not have to pay Class 2 NIC’s.
•Class 4 NIC’s are paid as a percentage of your annual taxable profits – 9 per cent on profits between £7,225 and £42,475, and a further 2 per cent on profits over that amount. Class 4 NIC’s are paid when you pay your Income Tax.
Q. Who pays the tax and NI?
If you work as a sole trader using our Sole Trader Payroll solution you are responsible for your own tax and Class 2 NI. At year-end you need to complete a Self Assessment Tax Return.
If you want help with this, look at our Sole Trader Premium product, which includes a self assessment tax return as part of the package or call us on 020 8643 9633.
Business expenses are tax-free and are deducted before tax and NI are calculated.
Q. Who pays the VAT?
When we handle your payroll we charge VAT on invoices to your UK clients.
You don’t need to be VAT registered yourself unless the value of your taxable supplies in the past 12 months or less has exceeded the current VAT registration threshold (£73,000 as at January 2012) or the value of your taxable supplies in the next 30 days alone is expected to exceed this threshold. You would then need to register for VAT and add VAT to your invoices. We would add this amount of VAT to your payment.
If you are VAT registered you can claim back VAT on goods and services that are used in the business. Ensure that you keep all receipts.
Q. What are your fees?
Fees for our Sole Trader Payroll solution vary depending on the invoice total and start from as little as £5.00 per week. Contact us for more information.
Q. Do I need to complete a tax return?
Yes. Once you have registered with HMRC as a Sole Trader they will automatically send you a self assessment tax return to complete. Here you can detail all of your work related expenses, which should then reduce your overall tax liability. If you require assistance in completing your tax return please contact us on 0845 620 9255.
Q. Do you provide any insurances?
Yes, we have worked with our brokers to offer a range of insurances to contractors. Cover for Employers and Public Liability Insurance at £10 million and £5 million respectively is included with all our payroll solutions free of charge. Professional Indemnity Insurance can be arranged, if it is a requirement of your contract, at £11 per week and only applies the weeks that you work. Site Accident Insurance is automatically provided at a very competitive rate of £2.50 per week, only for the weeks worked.
Q. What is IR35?
IR35 is the government’s process to determine your employment status. In short it is in place to determine whether you are a genuine contractor; or whether you should be employed and are avoiding paying PAYE on your full earnings. For more information, visit http://www.hmrc.gov.uk/ir35/. We can arrange an assessment of your contract terms if you would like to undertake one for a small additional charge.
If you have any further questions, please contact us and we will be pleased to help you.