How does tax work for sole trader?

Greenbaize

Hi all

Just wondering how tax system works for self employed in simple terms. So lets say you start a business and have to charge vat to the customer on each sale. I know with vat you pay the difference between the vat you charge and the rate you were charged by supplier but what other taxes will a self employed sole trader have to pay?

I know you pay income tax at end of year but how much? And how would you know how much money to keep back in order to make sure you have enough to pay your income tax at end of year?

If someone could explain how it works in simple terms I'd really appreciate it!

Greenbaize

Greenbaize wrote: »

Hi all

Just wondering how tax system works for self employed in simple terms. So lets say you start a business and have to charge vat to the customer on each sale. I know with vat you pay the difference between the vat you charge and the rate you were charged by supplier but what other taxes will a self employed sole trader have to pay?

I know you pay income tax at end of year but how much? And how would you know how much money to keep back in order to make sure you have enough to pay your income tax at end of year?

If someone could explain how it works in simple terms I'd really appreciate it!

Basically how would you know how much you can take for yourself weekly and make sure to leave enough in to pay taxes at end of year

Legend100

Greenbaize wrote: »

Basically how would you know how much you can take for yourself weekly and make sure to leave enough in to pay taxes at end of year

it is difficult to explain in its simplest terms as with tax (pretty much always) the answer is....it depends!

there are various things to take into account such as marital status, other sources of income, availability of tax credits etc.

I would advise sitting down with an accountant, even if only for one meeting so you can explain your individual circumstances. They would then be able to give you a ballpark % of how much to hold back. A preliminary meeting should not be too expensive as you could agree an hourly rate fee for that one meeting (say 100 for the meeting).

To take a conservative approach, you could use around 35% as a measure of how much to have in reserve for tax but I can't stress enough how it will entirely depend on your personal circumstances.

Greenbaize

thanks for your reply. I will take your advice and do just that.