Sole traders make up an ever increasing proportion of the workforce. Some work in creative industries – writers, media people, photographers and designers. Some as management consultants, project managers, programmers or developers. Others as builders, electricians, accountants and beauticians. The range of sole trader businesses gets bigger all the time.
More than three quarters of sole traders say their best working days are still ahead of them. So if you’re a sole trader, or thinking of becoming one, you’re in good company.
In 2016, there’s never been a better time to be a sole trader. Technology has pushed back boundaries and created new opportunities and depending on the type of work you do, you can be based almost anywhere. For example, some sole traders may need little more than a laptop and an internet connection. Others may need tools, supplies or a vehicle, but they’ll still be agile – ready to move wherever their work takes them.
Lightening the load by moving online
One reason why things are looking up for sole traders is because technology has made it easier than ever to do business. Online or cloud-based software has streamlined processes and sped up the exchange of information. For example, you may already be using:
· online office tools like Microsoft Office 365 or Google Apps
· email services like Gmail
· cloud-based file storage and accountancy software
· social media to market your services and keep in touch with customers
· video conferencing to talk to clients and friends
· websites to reach new clients.
It makes sense to move your whole business online as there’s no point being tied to a single computer or desk. Cloud-based software gives you the opportunity to work from anywhere with access to your business from any device.
Filing your tax returns online
Using cloud-based accounts software like Xero means you will be able to connect directly with HMRC to upload your annual tax return which makes it a doddle. HMRC announced its strategy to digitise the taxation process and in 2016 there will be 10 million people with digital tax accounts, a third of the working population. If you’re not ready yet, you will need to be soon as everyone will need a digital tax account by the end of 2019.
This move to streamline the burden of compliance for small businesses and sole traders is a good thing, as it will eliminate wasted time and expenditure on inefficient compliance processes. For freelancers and contractors, it means no more paper tax returns!
Finding an accountant
Choosing an accountant is like choosing a new business partner. The right accountant will become a trusted colleague you can depend on, who offers advice and guidance as you grow your client list. The top things you need to look out for include finding someone with experience in preparing tax returns and financial documents for freelancers or sole traders with a similar revenue to yours and in a similar sector. Since HMRC is going digital, make sure you find someone who is savvy about using cloud-based software.
Get someone who’s proactive about saving you money. Some accountants will do little more than manage your accounts and complete your tax return forms, but the best accountants are more proactive. So before choosing an accountant, ask what they could suggest to save you money. If you're a sole trader or consultant, can you offset a percentage of your phone bill, car costs, maybe even rent or mortgage payments? What are the implications of doing so? The accountant should warn you of any pitfalls. For example, using your home as business premises could result in a tax charge levied on the house when you sell it! Make sure you ask the right questions and get the right answers before deciding.
The future of tax returns
With HMRC’s digital transformation, filing tax returns in the 2015/2016 tax year should make life a whole lot easier for freelancers. Xero believes this automated process will halve the time it usually takes to file a tax return, saving us all from an exhaustive process and a frustration headache!