There are a few key points to remember when going self employed, whether it’s to be your only source of income or just a ‘side hustle’ as it’s known. (Yes, that’s right, always got my finger on the pulse!) Here are the basics you need about where to start.
Telling HMRC
You must let the HMRC know & register with them as being self employed. This is completed online and will start the process of setting up your Government Gateway account, which will allow you to file your tax return & view your tax account. You have a bit of a window to get this done – the deadline is to inform the HMRC by 5th October after your first year. E.g. if you started in the tax year 2018/19 you would need to inform them by 5th October 2019.
Keeping Records
You are required to keep suitable records for your business; all details of income and any expenses you wish to claim. This in turn will be used to work out your profit & from that how much tax you will owe.
If you have a low level of transactions this could be easily managed with a spreadsheet & a file for your receipts – either electronic or paper. There are, however, some excellently priced software options. QuickBooks Self Employed & FreeAgent both have great Sole Trader packages, starting from less than £10 a month. They are also now updated to help complete and file your Self Assessment.
Paperwork
It’s very common to have a carrier bag or shoe box full or receipts – it’s not just a myth! Try to keep on top of them & deal with them immediately or at least weekly. Records are best kept in date order, even if you just bundle each month together, it will save you a lot of valuable time when you come to your bookkeeping. If you have enough purchases, it’s certainly worth considering software such as AutoEntry or Receipt Bank. You simply take a picture of your receipt & the details are sent to your accounting system. Great timesaver or if you’re a bit terrible with receipts or have enough to warrant the cost - starts at around £10 per month.
Getting Paid
This may be obsolete to many – if you are paid onsite or when an order is actually placed. But if you freelance, invoice your client immediately. Don’t be afraid to send a polite reminder after a reasonable period of time, or even pause work until an outstanding invoice or account is settled.
If you are using software you can use this to create your invoices, however if not you’ll need to make sure the following is included;
A unique reference
Date – Supply & invoice if different
Company & customer details
Description or goods/services
Amounts with total (with VAT details if applicable)
Paying Tax
The tax year runs from 6th April to 5th April the following year. Your annual return is due by 31st January the following year. You must also pay your tax by this date – a second payment is made by 31st July as a payment on account.
The amount of tax you pay will be based on your individual circumstances and how much you earn. Be aware of the tax bands to help calculate your income tax. National Insurance & student loans are also generated by your return. Make sure you budget & put money aside as a matter of course each month.
I also always advise to have a separate business account - it makes things so much easier to administrate & there are so many options to choose from.
If you decide you'd like help in setting up your accounts, regular assistance or self assessment tax return help, please do get in touch.