Guide to setting up as a Sole Trader (Self Employed) (UK)

Are you training to be a Yoga Teacher and planning your classes? Perhaps you've started teaching while training, or have you graduated and want to start teaching yoga?

If the answer is yes, then read on so you understand your tax obligations. Even if you haven't started teaching yet, you must know about paying taxes and National Insurance. 

The first thing to note is, in my experience, most yoga teachers work on a self-employed basis, which makes you responsible for paying tax and National Insurance (NI) on your earnings. 

The excellent news for new teachers is that you get a traders allowance of £1000 before you need to do anything. As soon as you reach the £1000 limit, you will need to set up as a sole trader.

Follow my simple guide on setting yourself up as a sole trader (self-employed) and file annual self-assessments.

Do I need to register anywhere as self-employed?

It depends on your annual turnover. If you are teaching yoga and earn under £1000 within the tax year, you are not required to pay tax on these earnings. HMRC allows a £1000 trading allowance per tax year.

What do I do if I earn over £1000 during the tax year?

If you earn more than £1000 during the tax year (06 April - 05 April), HMRC requires you to register as self-employed. You will need to complete an annual self-assessment form and pay tax and NI on profits. 

How do HMRC define self-employed?

You fit into one or more of the following categories:

• run your business for yourself and take responsibility for its success or failure;
• have several customers at the same time;
• can decide how, where and when you do your work;
• can hire other people at your own expense to help you or to do the work for you;
• provide the main items of equipment to do your work;
• are responsible for finishing any unsatisfactory work in your own time;
• charge an agreed fixed price for your work;
• sell goods or services to make a profit (including through websites or apps).

How do you register as self-employed?

The first step is to set up an account on the HMRC website and get a UTR (Unique Taxpayer Reference). Then enrol for the Self Assessment online service.

HMRC will confirm your unique UTR and login details via post within ten working days (21 days if you're abroad) with an activation code. You'll need this when you first log in to your online.

When should you register for self-assessment?

If you have earned more than £1000 in a tax year, you will be required to register by 5 October in your business’s second tax year. 

You can be fined if you don't register and submit a return.

When do you submit a tax return (SA100)?

You can either complete this online or download, print and complete a paper copy.

How long should I keep receipts/records?

You must keep records and receipts for at least five years after the 31 January submission deadline of the relevant tax year. HMRC may ask to check your records to make sure you have paid the correct amount of tax.

What records should I keep?

• records/receipts of all your business’s sales and income and expenses
• records of business expenses
• records of other personal income (if applicable)
• copy of Self Assessment tax return 
• PAYE records of any people who you employ
• copies of income tax and Class 2 and Class 4 National Insurance paid
• VAT records if you are VAT registered.

Expenses 

If you are self-employed, your business will have various running costs. You can deduct some of these costs from your profit to calculate your taxable profit. However, the costs must be allowable expenses.

Example -  Your turnover is £10,000, and you claim £4000 in allowable expenses. You only pay tax on the remaining £6000. This is known as your taxable profit.

What are allowable expenses? 

These include:

• office costs, e.g. stationery or phone bills;
• travel costs, e.g. fuel, parking, train or bus fares;
• clothing expenses, e.g. uniforms;
• staff costs, e.g. salaries or subcontractor costs;
• things you buy to sell on, e.g. stock or raw materials;
• financial costs, e.g. insurance or bank charges;
• costs of your business premises, e.g. heating, lighting, business rates;
• advertising or marketing, e.g. website costs.

Note that allowable expenses don't include money used from your business to pay for private purchases.

This list may not be exhaustive. For further information, please speak with your accountant. 

How much tax will I pay each year?

This is dependant on the amount of taxable profit which you make and whether you have another source of income. As tax and NI is paid the following year, you may want to put money aside to cover payments.

You can estimate how much tax you will be due to pay here.

Tax free personal allowance

All workers have an annual tax-free personal allowance. This is the amount of money you can make during the tax year before paying tax. Note that this is one allowance per person, and if you have a day job and are self-employed, you will not get two tax-free allowances. The tax-free personal allowance and the tax bands are the same for self-employed and employed people. 

During the current tax year 2022-23, you can make up to £12,570 before you need to pay tax. You'll then pay the basic income tax rate (20%) on income between £12,571 and £50,270. The higher rate of 40% applies to income over £50,271, and on income over £150,000, you pay the additional rate of 45%. Be aware if you live in Scotland, the tax bands are different.

Disclaimer

Yoga Alliance Professionals Organisation Ltd and the author assume no responsibility or liability for any errors or omissions in the content of this information. The information contained in this document is provided on an "as is" basis with no guarantees of completeness, accuracy, usefulness or timeliness.