Sole Traders

What major effect does the UK legal system have

The UK legal system has a major effect on the financial services industry.

Why should you be familiar with the main aspects of the UK legal system

Because they impact on savings, investment, insurance and pensions.

What do the characteristics of different businesses influence

How they are taxed, and their risks and liabilities.

What are the four major types of business in the UK

- sole traders

- partnerships

- limited companies

- public limited companies

What does the term 'sole trader' describe

Any individual who controls their business on their own, whether they employ other people or not.

What are sole traders in terms of employment status

Sole traders are 'self‑employed', and are their own boss.

Under what type of contract do sole traders provide services

A 'contract for services'.

Who is personally liable for the debts and liabilities of a sole trader business

The individual.

What does 'unincorporated' mean

It means their business is not a company.

How does the law treat the individual and the business

The law does not distinguish between the individual who owns the business and the business itself, and neither does HMRC.

Is there tax on the unincorporated business itself

No, tax is paid through income tax on the profits of the business by the individual owner.

How are capital gains of the business treated

They are treated as gains made by the individual and are potentially liable to capital gains tax.

How often do sole traders pay income tax

Sole traders pay income tax twice a year directly to HMRC.

What National Insurance contributions do most sole traders pay

Most will only have to pay Class 4 National Insurance contributions (NICs) (subject to profits being over minimum amounts).

How is the tax position of employees treated

It is treated separately.

How do employees pay income tax

Employees pay income tax under the Pay As You Earn (PAYE) system.

What NICs do employees pay

Employees pay Class 1 NICs.

What NICs must the sole trader pay as an employer

The sole trader must pay secondary Class 1 NICs, if their employee pays Class 1 NIC.

What taxes are the business profits of sole trader John Wilson liable for

They are liable for income tax, CGT and Class 4 NICs, he must collect income tax and Class 1 NICs (under PAYE) from employees and therefore would need to pay secondary Class 1 NICs.