Just Got Started With Self Employment? These Tips Will Make Things Easier

Business Accounting

Business Accounting

Becoming self-employed

Becoming self-employed can be an incredibly daunting thing. Getting yourself registered, having a business plan in place and finding clients for your business are obstacles that keep you up at night.

For the purpose of this guide, we will focus on sole traders. More and more people are turning to freelance work as an alternative to employment. There are some advantages to being a sole trader and some pitfalls.

As a freelancer, you can work from home, work at your own pace and work on your own hours. You still have to find clients and keep them though.

Beyond common knowledge such as the fact you need to register with the HMRC as self-employed, there are things that easily get missed or forgotten as you try and set yourself up for business.

We want you to be successfully self-employed and we believe that by following the following guidelines, you can be successful while staying safe from potential pitfalls.

Set Up A Bank Account For Your Earnings

It’s always preferable to set up a separate bank account for your earnings. You don’t need to set up a business bank account, just a separate account to maintain a record of your paid invoices that won’t get lost among other payments in your personal account.

You can use bank statements to cross reference your accounts and make sure the payments add up with your invoices and receipts. This makes it easier to report your earnings accurately on your tax return.

Scan, Save And Store Your Invoices And Receipts

Depending on how you record your finances, you may want to either scan your receipts, invoices and expenses or back them up on the cloud. If you send your invoices digitally, store copy’s on an external hard drive and back them up on a cloud based system like Dropbox or Google Drive.

Another option is to use Android or iOS apps like Moneypenny or Invoice2Go to store and track your invoices and receipts.

Organise And Update A profit And Loss Account

As a self-employed person, you don’t need to keep a profit and loss update but it’s a good idea to keep one. You can refer to the information you record to easily complete your annual tax return and use it as evidence of your work.

If your accounts are straight forward, a spreadsheet should suffice. If it’s a bit more complicated, a software package like Quickbooks or Sage can help take the difficulty out of self-accounting and automate the process. If you don’t have the time to maintain your accounts nor the time to update them digitally, an accountant is your best fit.

We can take the heavy lifting off your hands and keep your accounts up to date when you just don’t have the time to do it yourself.

As a self-employed person, you may need financial support such as in work benefits like Tax Credits/Universal Credit and a profit and loss account can be helpful as evidence for your benefit claim.

Know Your Self Employment Status

If you do freelance work, the best definition to follow is that of a sole trader. So long as you work alone and don’t employ people, you are considered a sole trader.

You can outsource work to other self-employed people but they have to invoice you and they are responsible for their own taxes. As a sole trader you don’t need to do much in the way of account reporting except to fill your annual tax return each year.

Be aware that you will be penalised for filling a late return and the later you do it, the bigger the fine. A £100 penalty is given for a tax return 3 months late and the penalties increase each month, after 3 months, a daily £10 charge is applied on top of the additional charges so don’t delay.

If you simply don’t have the time, accountant fees are much cheaper than late penalties and will save you money in the long term. Remember, even if you don’t owe any tax, you will be penalised for filing a late tax return.

From the tax year beginning 5 th April, you need to complete your tax return by the 31 st October if filing by hand or the 31 st January if filing online. You will get reminders in the post from the HMRC and they won’t except excuses like ‘I forgot’ or ‘I misplaced the form.’

It is possible that a penalty could be wavered if you were seriously ill, had a new child or experienced a death in the family but negligence will not be accepted.

Get Financial Help & Support

Earlier, we mentioned in work benefits. In work benefits such as tax credits or the incoming universal credit can be help if you are not making enough to pay the bills.

You can claim tax credits if are 25 to 59 years old and work 30 hours a week, 16 hours if you are over 60 0r disabled or a single parent. Married couples need to work 24 hours in total with one partner working 16.

You can call the tax credits helpline on 0345 300 3900 for more information regarding claims. You may be told you need to claim something called Universal Credit which is a series of ‘legacy’ benefits (tax credits, child benefits etc.) combined into a single monthly payment.

If you do have to claim Universal Credit, it is best to have some money saved up as you will have to wait up to a month and a half for your first payment.

Try and have some money saved to pay bills and rent if you live in rented accommodation as this can be a tricky and traumatising time. Another thing to be aware of is a rule known as the ‘minimum income floor’ which requires you to earn a certain amount per month to be regarded as in ‘gainful employment.’

We hope this short guide helps you move into self-employment, stress free and confident. If you need more help and advice, give one of our specialists a call and they will be glad to help.

Make An Enquiry

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