Thinking of going self employed? Know this first
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Here GoSimpleTax share top advice on the decision to go self employed and what you will need to do…
At the turn of the decade earlier this year, there were over 2 million freelancers in the UK. Combined, they contribute approximately £125 billion to our economy. And as working from home has never been easier, it looks likely that the demand for self-employment will only continue to rise.
The trouble is, self-employment isn’t as straightforward as simply winning business and doing the job. To ensure you don’t incur the wrath of HMRC, you need to register as self-employed and pay your taxes correctly. What’s more, you need the right records in place should you ever fall under investigation.
But don’t be overwhelmed. In order to support your dreams of working for yourself, we’ve asked Mike Parkes from GoSimpleTax to explain everything you need to know about your tax obligations.
Register as a sole trader
Firstly, you need to set up as self-employed and register for your Self Assessment tax return. This becomes a requirement once you start earning more than £1,000 from self-employment during a tax year, so there’s no harm in getting ahead.
Your Self Assessment tax return is due every year as of 6th April with a deadline of 31st January and summarises your earnings for HMRC so that they can accurately tax you.
Assuming you haven’t previously registered as self-employed, you’ll find two options waiting for you upon clicking through to the GOV.UK site:
- Register if you have not sent a tax return before
- Register if you have sent a tax return before
As this is the first time you’ll be submitting your records in order to pay Income Tax directly to HMRC, you’ll need to choose the former. You’ll have to wait for your 10-digit Unique Taxpayer Reference (UTR) number to come through. Once it does, you’re free to activate your account and start filing.
Keep detailed records
All invoices, receipts and bank statements need to be recorded. This isn’t just for safekeeping either – you’ll need them to input the correct information on your Self Assessment tax return and in case HMRC disputes your tax return submission.
There’s an added benefit to doing this too: you’ll have better visibility of the expenses you can claim for. Expenses reduce your tax liability – in other words, they can be deducted from your self-employed income to lower the total amount of profit that you’ll pay tax on.
Travel, tools and home office equipment are perhaps the most well-known examples of expenses. However, you can also claim back on:
- Financial help – Costs like professional indemnity insurance premiums and lease payments can be claimed back, although there are rules if you’re using cash basis accounting.
- Subscriptions – If you’re required to join a trade body or any professional membership organisations, the cost of the subscription can be claimed using your Self Assessment tax return.
- Stock – Any raw materials that you need to purchase for your trade, or the direct costs that arise from producing your goods, may be classed as allowable expenses.
Get ahead with your Self Assessment
Now that you know what to record and the deadline for submitting, why wait? Far too often, self-employed workers use the 31st January deadline as a benchmark of when to file. But there’s no good in leaving your Self Assessment tax return to the last minute.
In fact, in times of economic uncertainty, it pays to file early. Filing early doesn’t mean paying early (the deadline for paying any tax you owe for the previous tax year remains the 31st January), it just means you’ll know the amount of tax you owe ahead of time. This enables you to be better prepared for the payment.
Getting organised also means you’ll avoid the penalties for not filing or for not paying your tax bill on time. When you’re just starting out as self-employed, the last thing you want is to run into any avoidable fines – or get on the wrong side of the taxman.
Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such receipt uploading.
A simple and quick way to calculate your tax return and officially recognised by HMRC.
GoSimpleTax software submits directly to HMRC and is the solution for anyone who has income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. Available on desktop or mobile application.