Tax planning for unincorporated businesses (sole traders and partnerships)


Unincorporated businesses like sole traders and partnerships, are subject to different taxes than limited companies.

Specifically, and most importantly, sole traders and partnerships must pay Income Tax on profits, with rates ranging from 20 to 45 per cent depending on your income level.

You must also pay Class 2 and Class 4 National Insurance Contributions, based on profits.

For the tax year 2023/24, Class 2 NICs are £3.45 per week for self-employed individuals with profits of £12,570 or more per year.

Class 4 NICs are charged at 9 per cent on profits between £12,570 and £50,270, and 2 per cent on profits over £50,270.

If turnover exceeds £85,000, you must also register for, and charge, VAT.

Ways to mitigate your taxes

As a sole trader or partnership, you have fewer ways to reduce your taxes than limited companies.

(More on changing business structure in the next section).

However, there are a few mitigation strategies open to you.

To fully understand these strategies, and for tailored guidance on applying for them, you should always consult with an accountant.

Remember, mistakes on your tax returns – accidental or otherwise – including on reliefs and allowances, are frowned upon by HM Revenue & Customs (HMRC)

Time for a different business structure?

The choice of business structure – sole trader, partnership, or limited company – can have significant tax implications for your business.

Limited companies often enjoy lower tax rates compared to individual taxation rates but come with additional compliance requirements.

The decision should be based on a detailed analysis of your business’s specific circumstances.

The Government offers advice on choosing a business structure but as always it is important to consult with your accountant who can tell you about the specific benefits of each choice.

We can walk you through business restructuring and tell you which option is best for your specific circumstances.

Please don’t hesitate to get in touch if you require advice on your taxes.