Generally Accepted Accounting Principles

UK GAAP, the Generally Accepted Accounting Principles in the UK is the regulatory body, establishing how company accounts must be prepared and published in the UK. This includes not only accounting standards, but also UK company law.

The sole trader

A sole trader is a very simple form of business. It is, as the name suggests, a one-person business. It is an individual running a business. Where in all revenues and payments from the business are included within the individual's personal financial and tax affairs.

Accounting

The financial statements of a sole trader consist of:
An income statement which normally consists of profit and loss of account and incorporates the trading account for businesses that buys and sells goods.
A balance sheet which shows assets and liabilities of the business including the owner's capital.

Published Information

A sole trader can request an audit, but it is not required. There are no legal filing requirements or fees needed to set it up. One just literally goes into business on his own.

Tax and National Insurance

Sole traders must inform Inland Revenue that they are self-employed. They will also need to fill in a Self Assessment Tax Return. The latest submission date for tax returns is 31st of January. There are financial penalties for late submission.

If sole traders take on staff, they will have an extra responsibility of deducting Income Tax and Class 1 National Insurance Contributions from the staff's pay, and paying it along with their Employer's Contribution to the Inland Revenue, under the Pay As You Earn scheme.

Class 2 National Insurance Contributions are payable at a fixed weekly rate unless the sole traders have an exemption certificate. If their profit is below £4,215 per year they can apply for exemption from paying class 2 NIC contributions.

Class 2 National Insurance Contributions Rates 2004 - 2005 are a flat rate of: £2.05 per week.

Class 4 National Insurance Contributions are payable on profits between the Lower Profit Limit (£4,745) and the Upper Profit Limit (£31,720). Class 4 National Insurance Contributions Rates 2004-2005 are based on 8% of profits between the limits and 1% above £31,720 per year.

The company

A company is a legal entity, allowed by legislation, which allows a group of people, as shareholders, to form an organization, which focuses on achieving set goals, and is authorized with legal rights which are usually only set aside for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money

A company is also known as a "corporation." The main advantage of a company structure is that it provides the shareholders with a right to participate in the profits (by dividends) without any personal liability (the company takes up the entire liability of the business).

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