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A key decision when starting a business is which legal structure do you choose when registering. The three most common options are sole trader, limited company and ordinary business partnership, although most people become a sole trader. Sole traders make up about 59% (3.5m) of the total UK business population of 5.9m, and they include many freelancers, contractors and agency workers.

Ordinary business partnership members make up about 7% (405,000) and basically these are sole traders who go into business together. The UK also has about 2m (34%) active private limited companies. So, why do so many people in the UK who work for themselves operate as sole traders?

What is a sole trader?

Being a sole trader is the same as being self-employed. In law, you and your business are the same thing, which makes you personally responsible for your sole trader business debts. If you don’t build up large debts and your business is successful, this won’t be an issue, of course.

To become a sole trader, you must register for Self Assessment (SA), the system (UK tax authority) HMRC uses to collect tax from sole traders. You’ll then pay Income Tax on your profits during the tax year (20%, 40% or 45% depending on your income/earnings). You work out your profits by deducting your expenses and any allowances from your income/earnings/sales.

Sole trader NICs

Most self-employed people pay their National Insurance contributions (NICs) via SA:

• Class 2 if your profits are £6,515 or more a year (£3.05 a week) and
• Class 4 if your profits are £9,569 or more a year (9% on profits between £9,569 and £50,270 and 2% on profits over £50,270 – all figures quoted are for the 2021/22 tax year).

Declaring sole trader earnings and VAT

Sole traders aren’t required to submit annual accounts to HMRC, but they must maintain accurate financial records (which can be checked) and submit details of their income and business costs in their annual SA100 tax return, which must be filed each year.

If your VAT-taxable earnings/turnover goes over £85,000 a year (the current VAT threshold) or you know they will, you must register for VAT. You’ll then have to charge VAT, collect it and pay it to HMRC. This also applies to limited companies.

The advantages of being a sole trader

It’s very easy to register online for Self Assessment so you can start your sole trader business. There are no costs and the process is very quick (minutes not hours or days). The tax admin is much easier when compared to a limited company, which means it can be done quicker. This saves cost, whether you do it yourself or pay an accountant to do it for you.

The paperwork and financial record-keeping requirements when you’re a sole trader are minimal; completing your SA tax return is more straightforward and any losses you make can be offset against other income.

Many customers won’t care whether you’re a sole trader or not, as long as your prices, products and/or services meet their expectations. In any case, you can easily change to a limited company structure later if you wish. And sole traders can employ others and their businesses can grow and prosper.

Being a sole trader can give you much more flexibility and control over your business, because you’re not answerable to shareholders – and you won’t have to share your profits with them either. You will enjoy more privacy, too, because the annual accounts of limited companies must be published on the Companies House website, which means anyone can view them. Sole traders do not have to publish their annual accounts.

Sole trader v limited company: which is more tax-efficient?

Example 1

Sole trader profit = £50,000 Net income = £38,717

Ltd co profit = £50,000 Net income = £40,109

Difference = £1,392

Example 2

Sole trader profit = £100,000 Net income = £67,752

Ltd co profit = £100,000 Net income = £69,469

Difference = £1,717

Example 3

Sole trader profit = £150,000 Net income = £91,723

Ltd co profit = £150,000 Net income = £92,057

Difference = £334

These examples assume that all profits are extracted from the business, salary up to Secondary National Insurance threshold (£8,840) is taken and the remainder paid as dividends (2021/22 rates).

Conclusion

As the above examples show, operating as a limited company can reduce your tax bill. However, if you need to pay an accountant each month to look after your tax admin and complete your annual accounts and Corporation Tax returns, in reality, any financial advantage as the director of a limited company can be minimal or non-existent.

Each year, hundreds of thousands of people in the UK who decide to work for themselves register as a sole trader and many go on to establish and grow highly successful small businesses. In many ways, being a sole trader is the easier and cheaper choice and it need not hamper your business or your ambitions.

About GoSimpleTax

Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.

The government announced yesterday plans to introduce new social care tax, intended to help reduce the costs incurred when a person goes into care. If the bill passes parliament, this will mean be an increase in National Insurance contributions of 1.25 percentage points from April 2022, to be replaced by a separate tax of the same amount from April 2023. The benefit of this additional tax, in England at least, is that care costs will be capped at £86,000 (less if you don’t have that much in savings / assets). Scotland, Wales and Northern Ireland set their own social care policies, but will receive additional revenue from the tax generated.

The plan has drawn criticism from many who see it is a tax paid by low- and middle-income employees to subsidise wealthy retirees. It also appears to be a break of a manifesto pledge not to raise income tax, National Insurance or VAT – the justification for which, put forward by the government, has been that the pandemic has changed things.

This BBC article has a clear summary of the changes in more detail, as well as a chart showing how much extra tax you’ll pay depending on how much you earn. The bill still needs to pass parliament, but when this and other changes from April 2022 are confirmed, The Salary Calculator will be updated with the latest rates so that you can see what a difference it will make to your take-home pay.

Stamp duty has hit the headlines recently, following the end of Chancellor Rishi Sunak’s end-of-June stamp duty holiday deadline. Reports have highlighted that transactions have slumped after a surge of homebuyers taking advantage of the government’s housing market policies.

So what exactly is stamp duty, and what does the end of the stamp duty holiday mean for homebuyers and the housing market?

At The Salary Calculator, we’ll walk you through:

• What stamp duty is
• When stamp duty applies
• How much stamp duty costs
• When you must pay stamp duty
• What the stamp duty holiday was
• What the end of the stamp duty holiday means for the housing market

What is stamp duty?

Stamp duty, or Stamp Duty Land Tax (SDLT), refers to the tax you must pay to HM Revenue & Customs when purchasing a residential property or piece of land in England or Northern Ireland.

When does stamp duty apply?

Standard stamp duty applies to those purchasing a property valued at £125,000; that said, this does not apply to first time buyers unless their property is valued at over £300,000. Those who are purchasing a second property are also required to pay stamp duty, although the amount you pay here can be claimed back if you sell your first property within three years.

Exemptions apply where a portion of one’s home is transferred to a spouse or partner after a separation or divorce, or an individual inherited a property in a will.

How much is stamp duty?

The amount of stamp duty one pays is dependent on a property’s purchase price and is tiered in the same way as income tax. This is as follows for the period between 1 July 2021 – 30 September 2021:

For England and Northern Ireland:

• The stamp duty rate for a main residence property valued at between £180,001 – £250,000 is 0%. For those with additional properties, a 3% surcharge is applied to the entire purchase price of the property
• The stamp duty rate for a main residence property valued at between  £250,001 – £925,000 is 5% and rises to 8% for additional properties
• The stamp duty rate for a main residence property valued at between £925,001 – £1,500,000 is 10% and rises to 13% for additional properties
•  The stamp duty rate for a main residence property valued at over £1,500,001 is 12% rising to 15% for additional properties

For Wales from 1 July:

• The stamp duty rate for a main residence property valued at between £180,001 – £250,000 is 3.5% and rises to 7.5% for additional properties
• The stamp duty rate for a main residence property valued at between £250,001 – £400,000 is 5% and rises to 9% for additional properties
• The stamp duty rate for a main residence property valued at between £400,001 – £750,000 is 7.5% and rises to 11.5% for additional properties
• The stamp duty rate for a main residence property valued at between £750,001 – £1,500,000 is 10% and rises to 14% for additional properties
• The stamp duty rate for a main residence property above £1,500,000 is 12% and rises to 16% for additional properties

For Scotland from 1 April:

• Land and buildings transaction tax rate for a main residence property valued at up to £145,000 is 0% and rises to 4% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at between £145,001 – £250,000 is 2% and rises to 6% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at between £250,001 – £325,000 is 5% and rises to 9% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at between £325,001 – £750,000 is 10% and rises to 14% for additional properties
• Land and buildings transaction tax rate for a main residence property valued at over £750,001 is 12% and rises to 16% for additional properties

When must you pay stamp duty?

When buying a property in the UK, it’s a legal requirement to pay your stamp duty within 14 days of the date of completion/date of entry. After this timeframe, interest may be applied, and you may be hit with a fine. This follows legislative changes introduced in 2019.

What was the stamp duty holiday?

The stamp duty holiday was introduced back in July 2020. This tax cut was introduced to stimulate the property market amidst the Covid-19 pandemic and make it more accessible to homebuyers. It resulted in savings of up to £15,000 for around 1.3 million homebuyers.

Although the stamp duty holiday was set to expire in March, it was extended until June 2021. Temporary stamp duty rates are now higher than before and apply between July to September. Standard stamp duty rates will apply from 1 October 2021 onwards.

Standard rates for England and Northern Ireland are as follows:

• The stamp duty rate for a main residence property valued at up to £125,000 is 0% and 3% for additional properties
• The stamp duty rate for a main residence property valued at between £125,0001 – £250,000 is 2% and rises to 5% for additional properties
• The stamp duty rate for a main residence property valued at between £250,001 – £925,000 is 5% and rises to 8% for additional properties
• The stamp duty rate for main residence property valued at between £925,001 – £1,500,000 is 10% and rises to 13% or additional properties
• The stamp duty rate for main residence property valued at £1,500,001 and over is 12% and rise to 15% for additional properties

What does the end of the stamp duty holiday mean for the housing market?

The end of the stamp duty has been predicted to have some negative effects, such as:

• Buyers pulling out of deals
• A decline in buyer interest, and;
• A drop in house prices

That said, the future is uncertain, and industry experts’ forecasts are varied. Recently, Nationwide recorded a “surprising” 2.1% rise in sold prices, which Robert Gardner, Nationwide’s chief economist, has attributed to a demand for properties between £125,000 and £250,000.

Meanwhile, Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, commented: “We think that house prices will pick up again in 2022, finishing the year about 4% higher than at the end of 2021.”

Pension scams are on the rise. According to the Financial Conduct Authority (FCA), over £2 million has been lost to pension scammers in the last year, with victims, on average, losing out on £50,949. This number is double what it was in 2020. That said, small pots and big pots are being targeted, with victims being conned out of £1,000 to £500,000.

Of course, it’s incredibly worrying that such a nefarious scam has seen such an increase. Savers work hard their whole lives to make sure that they’re set for their golden days.

In response to this concerning trend, the government recently announced anti-pension scam plans to safeguard savers.

At The Salary Calculator, we’ll walk you through what the government’s Fraud Action Plan is, what it means for you and some steps you can take to protect yourself from pension scams.

This article will explain:

• Latest statistics from the FCA
• What the Fraud Action Plan contains
• Tips to protect yourself against fraud

A warning from the Financial Conduct Authority (FCA)

According to the FCA, pension scams have become increasingly common due to the pension freedoms introduced in 2015. This gave people much more flexibility around their investments; however, this flexibility also brought with it risk.

Now, the FCA says that pension holders were nine times more likely to accept pension advice from someone online than someone in person. Savers were also five times more likely to be attracted to a free online pension review by a stranger than one offered by a stranger in the pub. Worryingly, out of those surveyed, 28% were aware that this kind of offer was typically the sign of a scam.

As a result, Mark Steward, executive director of enforcement and market oversight at the FCA, suggests that pension holders should challenge themselves and “flip the context”. “Imagine a stranger in a pub offering free pension advice and then telling you to put those savings into something they were selling. It is difficult imagining anyone saying yes to that,” he said.

According to Tom Selby, senior analyst at AJ Bell, men aged 55 and over “who can access their retirement pot flexibly” are one of the main targets for this kind of scam. Of course, the current climate caused by Coronavirus has made people more vulnerable to pension scams too.

The Fraud Action Plan

The UK government recently admitted that it needs to do more to protect people from pension scams. So, it will soon publish its Fraud Action Plan 2022-2025, which will seek to bolster consumer protections by eliminating fraudulent infrastructure.

Reportedly, more emphasis will be placed on tackling ‘secondary scammers’ who go after those who have already been scammed, and the government will also pursue greater gathering and sharing of data relating to pension scams.

Tips to protect yourself

While you may think that you’re too savvy to be at risk of a pension scam, scammers are becoming increasingly sophisticated with the tactics they use to trap victims.

The FCA has warned that overconfidence on the part of consumers puts people at risk. So, it’s always best to make sure that you take some steps to safeguard yourself.

Look out for red flags – As outlined above, those offering free reviews are unlikely to be legitimate advisors, equally those who promise you ‘high returns’ are likely to be pulling a fast one.

Keep yourself informed – In line with the UK’s pension rules, you typically can’t unlock your pension until you’re 55. So, if you’re promised an early cash release, it’s likely that this is a scam. Get in touch with the Pensions Advisory Service if you have any questions or concerns. Pension Wise is another service that can help you stay in the loop.

Be wary of cold calls – Back in January 2019, the government banned cold calling regarding pensions. So, unless you have given your pension provider prior permission to call you, ignore calls and texts regarding your pension because those who get in touch are likely to be scammers.

Take your time – Those who pile on the pressure or give you a limited time offer will likely be scammers. It’s important to take the time to research a provider to make sure everything is above board. Always check the Financial Services Register before making a decision.

As the summer goes on and more places open up, the prospect of finally going on holiday is incredibly exciting. That said, with policies around travel changing all the time, it’s also understandable to feel concerned that things might not go according to plan.

At The Salary Calculator, we’ll make sure that you’re all clued up when it comes to travel insurance this summer so that you can take a vacation stress-free.

This article will walk you through:

• What should you look for when choosing travel insurance?
• What situations are not covered by travel insurance?
• What happens if you catch Covid?
• What happens if the NHS app pings you?

What to look for when choosing travel insurance

Luckily, more providers are now offering covid-related travel insurance after initially distancing themselves. Now, there’s a wide range of providers to choose from, but there are a few different aspects to look out for when making your decision.

When searching for travel insurance, ask yourself:

• Does the provider offer coverage if I test positive for Covid?
• Does the provider offer curtailment cover?
• Does the provider offer coverage if I lose a loved one due to Covid?
• Does the provider offer coverage if I miss my flight because my required Covid test has not returned results in time for my getaway?
• Does the provider offer medical cover if I fall ill with Covid?
• Does the provider offer protection from the Foreign, Commonwealth and Development Office (FCDO) travel advice changes?

Equally, to ensure that covid doesn’t catch you out, it’s best to keep updated with any rule changes and travel guidance. So, before booking a holiday, it’s wise to check in with the UK’s traffic light system.

It’s also important to remember that just because a country is on the UK’s green list, you may not be allowed entry as a holidaymaker. Checking the Foreign Office website and checking in with a country’s UK embassy website will keep you in the loop.

When am I not covered?

There are some situations where your travel insurance won’t offer coverage. If the FCDO changes its travel advice to warn against all travel, holiday providers will likely cancel and refund your trip. That said, while policy providers covered cancellation based on FCDO advice before the pandemic, now fewer policy providers are doing so. This will vary depending on your provider, so it’s important to check the details.

Also, be wary of accepting vouchers or Refund Credit Notes (RCN) from airline and holiday companies for cancellations. If you do, you can’t claim from your travel insurance cover as this is viewed as a double claim.

Additionally, you won’t be covered for ‘disinclination to travel’, which essentially means you have personally made the decision not to travel. So, for example, if you’re due to travel but hear that pandemic cases are rising in the area you are staying, you no longer wish to travel and cancel your holiday, you won’t be covered. Equally, if your hotel informs you that some of its facilities will be closed due to Covid, and as a result, you no longer wish to travel and cancel your holiday, you won’t be covered here either.

Am I covered if I catch Covid?

While coverage will vary from provider to provider, there are quite a few out there that offer Coronavirus trip cancellation cover. So, if you or a household member falls ill with Covid within 14 days of your holiday, and you have to cancel, you will be covered.

Some providers offering this coverage include:

• Co-op
• Asda
• Nationwide
• JustTravelCover
• Staysure

Likewise, if you have booked activities for when you are on holiday, and they are disrupted due to Covid, there is Coronavirus excursions cancellation coverage.

What happens if I’m pinged

Recently, more and more people are being ‘pinged’ by the NHS app. So much so, the phenomenon has been dubbed the ‘Pingdemic,’ with record numbers reaching 689,313 in one day at the end of July.

So, it’s understandable to be concerned that your holiday may be jeopardised by coming into contact with someone who has tested positive for the virus.

If you do find yourself pinged before you set out on holiday, you should identify whether or not the Test and Trace service is instructing you to isolate. While you do not legally have to isolate yourself if you have not received instruction, it is advised to do so. Subsequently, most providers will offer cover for ‘advised’ isolation. Staysure, for example, offers cancellation cover if you are unable to travel due to receiving contact from Test and Trace.