As a sole trader in the UK, you are required to pay Self Assessment tax on your taxable profits. Below is an example explaining how to account for tax as a sole trader that you can easily transpose to your business.
Example:
- Business started on 18 Oct 2022
- Year 1 will run from this date through to 5 April 2023
- Year 2 will start on 6 April 2023
- The calculation of the final tax bill for year 1 will take place once the period ends (5 April 2023)
- The company will have 9 months from the year 1 end date to file the tax return and pay the tax bill (31 Jan 2024)
Steps to take if you don’t have an accountant
- Calculate the tax amount to pay
- Create a bill with the amount to pay dated end of year 1 (5 April 2023) and categorised as ‘Tax cost’
- Pay the tax and categorise the payment as ‘Tax liability’
- Match the bill you created to the tax payment
Steps to take if you have an accountant who has access to your data
- Your accountant calculates the tax amount to pay
- Your accountant creates a journal dated end of the year 1 (5 April 2023) to:
- Debit Tax cost
- Credit Tax liability
- You pay the tax and categorise the payment as ‘Tax liability’