Top 10 tax tips for the self employed

  1. Get registered with HMRC – while the deadline to register for self-assessment is quite generous, you only have three months from starting to trade to register for Class 2 National Insurance. You may as well do both at once and avoid a late registration file of £100. 
  2. National Insurance (NI) for the self employed is different to employed – if your profits are high enough you’ll now be paying Class 2 and Class 4.  Class 2 is a flat rate weekly payment due from starting to trade. Class 4 is a percentage of your profits. If you still have any employed work you will still be paying Class 1 – so make sure you don’t overpay overall. 
  3. You can opt out of Class 2 – if your profits are small enough.  However, you need a certain number of ‘qualifying years’ of sufficient NI contributions to get a full state pension. So if you are not paying NI somewhere else, via a continued employment for example, you may need to check how many years you have accrued and how much longer you intend to work to make sure you have enough.
  4. The tax year really does run from 6 April to 5 April.  It used to be the 25 March until we switched to the Gregorian calendar in 1752 and ‘lost’ 11 days. 
  5. File on time – paper returns need to be with HMRC by 31 October after the end of the tax year and online forms by 31 January. Yes, there are more fines for late submission.
  6. Know your payments on account (POA) – provided the tax due is over £1,000 you will be asked to make the two interim tax instalments for the next tax year when you pay your tax.  POA for the year are based on the tax due in the previous tax year. 
  7. Pay on time –The pattern once you are up and running is as follows:

i. a POA on the 31 January during the tax year.

ii. a second POA by 31 July after the tax year

iii. the final balance by 31 January – along with the next POA for the current year

  1. Watch out for the first tax bill – because in the first year you will not have made any payments on account, the bill in the January after your first tax year will cover all the tax due from that first tax year – plus the first POA for the next year.  Make sure you save for the tax as you go.
  2. Keep your all receipts – you’ll need evidence for your expenditure to claim relief for business costs later. 
  3. You don’t need to have a complicated accounting system – just something that works for you and enables you to get enough information to run your business. You can start with a manual cash book or an excel spreadsheet if the business is small enough, or a basic accounting package if it’s more complex. The system should match the complexity of your business.

Helen Thornley, Tax Consultant
 

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