Sole traders: calculations & wage deductions etc.

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/6673418/sole-traders-calculations-wage-deductions-etc

First of all need to get your head around the concept of self employment and that the business and the person is legally the same. There are no wages, there is no net pay, these are all terms relating to employment not self employment. You generate revenue by selling products/services, you deduct from that your allowable expenses and what remains is your profit, you get taxed on your profit irrespective of if you have spent it or are saving it for a rainy day

2) Depends on how stable the emergence of your profits are, you could set aside 8.33% of your weekly profits if they are consistent but that is only going to cover your normal living costs whereas when most people go on holiday they have to pay their mortgage/rent but also pay for their hotel room/villa so more would need to be put aside.

Also depends on what they do, many self employed people are very bad at taking holidays because simply shutting the business for 4 weeks a year can be very bad for business. A friend does refuse collection for example, he has clients who need sacks of rubbish taking away every day before the shop opens to the public, he cant just tell them no one is going to collect it for 2 weeks whilst he's on a beach somewhere else when he comes back they will no longer be his customer

3) Putting something aside plus insurance for longer term issues, if they plan ahead. As long as you've been trading for a reasonable period you can get income protection as a sole trader contrary to urban myth

mlz1413

You have asked a 'guess how long a piece of string' is question.

But a simple thing to do would be save 20% of all INCOME into a separate account towards tax and NIC.

I'd highly recommended paying an accountant for the first year to two.

Also if your friend wants 4 weeks holiday a year then they need to save for that separately. This could be deciding how much money they want to spend each week on holiday. Or it could be saving up the holiday cost plus all bills whilst away.

Remember Xmas isn't paid either.