22 top tips for the newly self-employed

22 top tips for the newly self-employed

22-top-tips-for-the-newly-self-employed

 

Here are my top tips to remember when you are starting in business:

1) Notify HMRC that you have started in business.

2) Arrange insurance coverage:

  • for the business
  • for business use of your vehicle
  • for business use of your home
  • for yourself

3) Decide on how you will record your business transactions. Perhaps on a spreadsheet, via a bookkeeper or via online or offline bookkeeping software. Make sure you record all your expenses, otherwise the tax relief could be lost.

4) Even if you have not made a profit from your self-employment, you still need to declare the income and expenses on your annual tax return.

5) Make sure that you obtain receipts/documentation for your self-employed expenses.

6) Remember to claim for the use of your main residence as an office, if you do so.

7) You’ll have to keep the records of your self-employed business for six years after the tax year they’re for, in case HMRC ask to see these. You can store these electronically, provided you have a backup and all the information from the original is recorded.

8) Remember the tax return deadlines to avoid unnecessary penalties: 31st October if submitting a paper return and 31st January if submitting electronically. Ensure that these tax deadlines for return submission are planned for and met.

Otherwise you could end up paying needless fines and penalties (of £1600 or more in some cases, even if there is no tax due) which exceed the cost of getting professional assistance.

9) If you are both self-employed and employed then it may be possible in some cases to set self-employment losses against your employment income, and possibly generate a refund from any tax already paid on employment.

10) Make sure that you avoid the HMRC penalties for non-declaration of income that could double your tax liability.

11) Keep up to date with changes in HMRC regulations, or use a specialist who can do this for you and ensure that you are making the best advantage of these.

12) For the self-employed, accountancy fees also qualify for tax relief – making them even better value.

13) If you decide to get help, shop around when choosing an accountant to find one that suits your needs.

14) A key point to remember – Your own times isn’t actually free.

How much does it really cost you to do your own tax return? – you can work out the real cost:

Time taken   x   your usual hourly rate

(+ hassle + worry if doing it yourself)

15) Free tax return & accounts? In many cases an accountant’s fees are less than the HMRC penalties & charges would be for doing nothing.

16) Make sure you set aside time to work on the business growth plan, in addition to working in the business.

17) Start saving towards the tax and national insurance liabilities. National insurance is a commonly forgotten extra tax for the self-employed.

Also allow for the payments on account towards the following years tax liabilities (the self-employed pay tax for two years together) – these could mean your first tax bill is over 150% of what you were expecting.

18) Payments on account for the following year are estimated assuming your income will remain the same. If the income has gone down in a year, then you can apply to reduce these in line with the expected income for the year. This is something to remember in the early years when growth may vary.

19) Record all your business mileage. Even short trips to the bank or post office mount up over the year and if not recorded could cost you in lost tax relief.

20) Decide whether you may be better off getting some assistance to help you with the business, whether that is a virtual PA, a bookkeeper or other professional who can save you money by freeing up your time for fee earning work instead. There is no tax relief for your own time, no matter how long it takes you or how much it costs you in lost work.

21) Plan to set aside time for increasing your own knowledge. “You’ve got to learn more to earn more” – this will put you ahead of your competitors and give you an advantage in any industry changes.

22) Make sure that you are allowing enough free time in your schedule.

Many people start a business in order to have more free time, but end up actually spending many more hours working. The most important business asset is yourself, so ensuring that time is blocked out in your diary for rest can actually increase your effectiveness.

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