Sole traders: calculations & wage deductions etc.

SunFlower

Hello everyone,

If this isn't the best place to post this, I apologise and admin, please feel free to move it to a better location - please just let me know.

I'm trying to help someone close to me who is a sole trader. As I am a PAYE employee, it's a new world to me, so I would appreciate any answers to my questions/advice you could give me.

Initial questions:

1) What is/are the best online calculator for calculating a sole trader's tax deductions etc to be taken out of their net pay? I have tried one online, but I'm not sure how accurate it is.

2) How do other sole traders calculate how much to put to one side for holidays etc? If you are paid weekly is it as simple as multiplying the net amount earned in a week by 48 and dividing by 52 to calculate a 'set aside' amount, based on 4 weeks of holidays per year?

3) What about sick pay? How do sole traders attempt to put something away in case they need to take time off in case of illness or injury etc?

I know these are pretty simple questions, and your patience and advice is appreciated.

Thanks in advance. 🙂

Isthisforreal99

An impossible question to answer without some indication as to level of profits

Brie

Might be better on the Small Biz board. If you don't get any satisfaction here let me know and I will see about moving the post.

SunFlower

https://forums.moneysavingexpert.com/discussion/comment/82042775#Comment_82042775

At the moment, this person is working as self-employed for someone else who arranges the work for them. They sometimes have to buy materials for jobs, but it mostly goes on a company credit card, from what I can make out.

When you say 'profits' ate you referring to how much they take home in wages, or overall profits including materials etc. on the jobs they do, please?

SunFlower

https://forums.moneysavingexpert.com/discussion/comment/82042797#Comment_82042797

Thsnks Brie - I'll let you know. 🙂

Grumpy_chap

I don't wish to be mean and understand the OP is doing their best to help a friend but with this, and the second thread (below) about helping a friend with pension arrangements, I wonder whether the best advice the OP can give to the friend is to engage professional advisors.

The OP, with all good intent, posting here and possibly not having full details for the friend's finances, and then receiving responses in a subject where the OP admits limited knowledge / experience, might present the risk of being rather like "Chinese Whispers" plus mis-interpretation and leave the friend with an incorrect understanding that might be no better than never having asked at all.

Or, encourage the friend to sign up and post their own queries directly.

https://forums.moneysavingexpert.com/discussion/6673416/sole-trader-advice-pension-possibly-otherwise

SunFlower

https://forums.moneysavingexpert.com/discussion/comment/82042818#Comment_82042818

I posted on two separate different sections of the forum as one question is directly linked to pensions and the other questions are not; I imagine if I had out everything In one post on one forum, people on either side of the forum might have suggested I post in the other as some of all of the questions I have done not fall directly into the express reason for the other forum section existing.

I have a reasonable understanding of the person's situation and if I get into a fruitful discussion with them about certain areas of their finances, I'm more likely to be able to get more information as I go along to be able to help them better.

There's no way my friend will post here to ask for help, or anywhere else - they have a lot going on in life, including mental health issues, so getting information imperfectly to help them is the next best solution.

As always, answers to questions asked are always gratefully received as perfect is the enemy of the good.

Grumpy_chap

I was not particularly concerned about the two separate questions being in two areas of the forum. More the potential risks if your friend relies on second-hand information obtained from a chain of communications, plus the risks to you / your friendship if the friend relies on your advice but that advice turns out to be incomplete or erroneous or misunderstood. Sometimes, the best advice and the best help is not to help but to point in the direction of more appropriate advice.

If that is not possible here, and you are going ahead with eyes wide open, then I applaud you in taking your time to assist a friend.

QrizB

When you say 'profits' ate you referring to how much they take home in wages, or overall profits including materials etc. on the jobs they do, please?

Sole traders don't receive wages. They are paid by their customers for the services and/or goods they provide.

On any given job, the costs they incur (materials, tools, travel etc.) should be less than the price they charge. The difference is their profit for that job. If the costs exceed the price then they make a loss.

Over a year, they would hopefully make an overall profit. This expected annual profit is the number we're looking for.

A self-employed person might make less than £10k in profit in a year. Or they might make more than £10M. What's appropriate for a £10k profit is likely to be wholly inadequate for a £10M one, while what's appropriate for £10M is likely to be unaffordable at £10k.

Jude57

Your friend could start here:

https://www.business.gov.uk/

My local authority offers specialist help to small and medium enterprises (SME). I've given the link below so you can see some of what's available. Your local authority, depending on size, may have something similar. Failing that, searching online for local small business support should hopefully signpost you to useful sources of help.

https://newcastle.gov.uk/services/business-and-commerce/business-commerce/grow-your-business-newcastle/support-business

Marcon

At the moment, this person is working as self-employed for someone else who arranges the work for them. They sometimes have to buy materials for jobs, but it mostly goes on a company credit card, from what I can make out.

That doesn't immediately sound as if it would pass muster with HMRC as self employment. You might help your friend to work through this guidance: https://www.gov.uk/guidance/check-employment-status-for-tax