E commerce Drop shipping Accountants for Sole traders Guide
Operating your company as a sole trader is perhaps the easiest company structure to run in the UK. This type of company does not involve a lot of requirements when it comes to the filing and accounting requirements to operate it. This implies that a sole trader has less administrative obligations to fulfil in comparison with other company structures like a limited company.Find out more
A sole trader uses their own identity to run the business and makes all their business liabilities their personal responsibilities. They are taxed personally for the profits they make in the business. A good example of a sole trader operated business is a market stall trader. They do not operate as a limited company as a limited company operates as a separate legal identity from those running it and therefore is liable and responsible for every business liability.
Another difference is that a sole trader considers the business profits theirs, personally unlike a limited company that owns its profits by itself. A sole trader has the right to access the profits the business makes at any time but a limited company’s profits may be used for paying salaries and dividends of its directors and shareholders.
Sole Trader Taxes
Unlike other company structures, a sole trader pays taxes on every business profit they make and these tax transactions take place through the personal self-assessment tax return of the sole traders. In the sole trader self-assessment tax return, the business owner completes the Self Employed sections. This puts the correct meaning of self employed in use. Instead of taxing their business profit, they tax it as their income. So, sole traders pay income tax and national insurance also applies to them.
Note that a sole trader is free to make a withdrawal of cash from their business and no tax will be due as a result. The reason is simple! The withdrawn money is already owned by the sole trader and they pay taxes on the entire profit or loss that the business makes.
Regarding National Insurance contributions, both Class 2 and Class 4 are applicable to a sole trader. The general charges for Class 2 NI are 2.85 per week meanwhile for Class 4 Nis, they go at 9% of profits from 8,164 and 45,000 at a 2% rate (applicable to 45,000 profits and above.)
Accounts guide for sole trader in an E-commerce business
We can produce accounts out of your books every year-end. Our speciality is dealing with every statutory account and financial statement for any company and that includes:
Balance Sheet: It is a report of what belongs to you and debts you have to be pay or be paid at the close of the financial year. It is your Profit and Loss Account per year, containing the year’s sales and expenditure.
We are the go-to team to help you organise your books using the best in-house methods possible to help make your business finances crystal clear and easily manageable.
With all the vast experience in accounting and bookkeeping, we will process your data accurately and promptly to enable you to access the monthly reports and information we provide not only at year-end but throughout the year.
Apart from endorsing the use of Xero for your account management, our team is also proficient in Xero. However large or small your business is, we provide professional advice on how to explore the advantages it system offers.
Our package also involves providing up-to-date advice to prepare you to be able to give the right report on Tax and VAT as per your business requirements. This will enable your business VAT return results to be a reflection of your respect for the relevant laws businesses within and without the UK follow.
E commerce Accountants for Sole traders operating as drop shipper
When operating as a sole trader and conducting a drop shipping business, it is important to register for self-assessment, the latest to date to register is the 05th October of the second tax year. It is also important to consider VAT, as this is important and the place of supply of goods needs to be reviewed. What needs to be determined here is, who is the importer and liable to VAT.
Frequently Asked Questions
UK VAT: When is the right registration time for me?
Your right time to register for UK VAT is when:
- As a UK business, the sales you have made on VAT have reached 85,000 in the past 12 calendar months
- As a UK business, you have in the past calendar year surpassed any of the distance selling thresholds
- As a non-UK EU business, you have surpassed the distance selling threshold for the UK
- As a non-UK business, you aim to embark in selling products including drop shipping from a warehouse within the UK.
What should I do to optimise my tax bill?
There are several factors tied to the right answer to this question. So, reserve it for when you are set to use some cash from your business.
In brief, be sure to:
- Claim every allowable expense
- Claim every business allowance such as home working
- Make the most of business expenses with benefits such as business mobile phones
- And let your personal income determine how you optimise your pay
Gm Professional Accountants specialise in the E commerce sector and we have office in London, Manchester and Birmingham.