Hi Stuart
Yes you are right a very small 1 person sole trader mostly does not require a balance sheet for tax return.
I think this needs to be discussed further and it would be interesting to hear other members view, as it depends what your client expects or needs .
Most sole traders even if they are under the threshold, if all or most of their customers are all vat registered , so will they be. You would have to be a numptie, if all or most of your customers were vat registered to pay out a extra 20% for all your goods and sevices you purchase as a sole trader, your client would be potentially making themselves uncompetive by adding 20% to their costs. This would not be the case for all soletraders I know , but you it would be looked at on a individual basis. This needs to be accounted for in your Vat account as said below Cash Vat accounting does not mean you are not running Debtors and Creditors. The HM as far as I know regard the work as complete when it the Invoice is raised, unless it can be proven it is Work in Progess and then this would be recorded in the balance sheet also.
The word Sole Trader and Self Employed can be misleading as not always a 1 person band. I have several self employed business that are far bigger then some Ltd companies and have been around for a long time and are no more less important then a Ltd company, they require a profit and loss and a Balance sheet report to run thier business. There is far less red tape involved in completing a tax return , then having the companies House and the CT to do.
They sometimes Employ more people , run Debtors and Creditors , a Paye System , and Vat . Just because a sole trader is not a Ltd company does not mean they do not need a balance sheet. How would they know what their real bank balance is if your records, and what I mean by that , a balance sheet shows if you are in trouble and can be used to make helpful plans and spot where there is potential l cashflow problems. Their Debtors and Creditors Balances , what is the balance on the Vat and Paye at a point of time. I admit most sole traders use vat cash accounting. For example Cash Accounting for Vat does not mean you do not need to run a Debtors or Creditors.
Choosing cash vat accounting as a method for return needs to be looked at on an individual basis , especially if a client is good at managing his creditors to 60 days which a lot are, but the same client can also be very fast at getting their money in and use it for cashflow.
I hope this claifies why I think a Balance sheet is needed.
Edited at 04 Feb 2011 01:59 AM GMT
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