Owner-Managed Businesses

Overview of sole trader tax planning

Produced by Tolley
  • 19 Oct 2021 08:16

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Overview of sole trader tax planning
  • Planning events
  • Accounting period ends
  • Pre period end planning
  • Post period end planning
  • Pension contributions
  • Tax year end
  • Completion of accounts
  • Completion of tax return
  • Payments on account

Overview of sole trader tax planning

Because sole traders are the most simple trading entity possible, it is very easy to overlook them when it comes to planning work. It is often the case that planning for such clients will be done on a purely reactive basis, such as when they approach an adviser to discuss incorporation or purchasing large capital items.

However, advisers should endeavour to review all of their clients’ positions at least once a year.

Planning events

Determining when to conduct planning for sole traders can be challenging. There are several annual events which may dictate when best to undertake planning work and what sort it is:

EventTypical planning considerations
Accounting period endCapital purchases
Expenditure deductible when paid
Pension input period (PIP) endPension contributions (annual allowance planning)
Tax year endPension contributions (higher rate relief planning)
Charitable donations
Personal taxation considerations
Completion of accountsProvisions
Bonus accruals
Completion of tax returnPayment of accrued bonuses
Claims and elections for relief
Payments on accountReduction in payments on account

Some of these events can occur at different times for each individual client. However, all unincorporated clients share their tax year end, tax payment dates and tax return filing deadline. This can create opportunities as well as challenges.

For example, this makes it easy to offer certain planning opportunities to every client at once. Advisers must always consider what is best for the client, but having clients with accounting period ends spread throughout the year will help spread the workload and allow time to consider each client’s individual needs.

However, for planning purposes, an early year end is very useful. For example, when signing off accounts for a trader with a 30 April year end, the advis

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