So, you’ve had your ‘big idea’ or you’ve got your first job and you’re going self-employed! Great!
What next?
Two small words, one very big question.
But don’t panic. Do not fear. We are here to help.
The first thing you need to do is make money or start doing what you need to, to make money.
Obviously, this is important otherwise, why bother? And if you’re not going to make money, how are you going to pay your Tax bill?
So, work out, or find out how much you’re going to earn. It’s important to know if the person paying you will be taking off some tax. This is normal in the construction industry or if you’re actually employed.
You will want to know what your ‘net pay’ or ‘take home pay’ will be. This is what you get to spend on whatever you want (or need to, bills…etc.) and this is how you know if it’s worth it.
Have you heard of ‘net weight’? It’s on food packets. It’s what the contents weigh when you take off the weight of the packaging. It’s what you are left with.
‘Net Pay’ is your pay, after you take off the tax. It’s what you are left with.
OK, after you know you’re going to make some money, you have to tell the government that you are going into business and HMRC will know to expect a Tax Return from you every year.
**IMPORTANT** This is not the same as ‘forming a company’ – a self-employed ice-cream man is ‘in business’, a self-employed electrician is ‘in business’
If you work, you are in business!
You can be ‘in business’ as a self-employed person or by way of your own limited company but this article is only about being self-employed.
So, now we really are in business.
That means declaring your earnings to the government (HMRC – Her Majesty’s Revenue & Customs).
To do that we go to the HMRC website and fill in some boxes!
You MUST register with HMRC within 3 months of starting as self employed.
The website is here:
https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed
You have 2 options. 1) If you’ve been self employed before & 2) if you’ve never been self employed.
Select the one for you, click the link and start filling in boxes!
HMRC try to make it easy but if you get stuck, take your time and read the instructions carefully.
Done that? Good!
If you’ve never been self employed before HMRC will send you a UTR (Unique Tax Reference) number.
This number is very important. If you are in the construction industry you will need to give this to who you are working for so they can pay you properly.
You also need your UTR so your accountant can submit your Tax Return for you.
Keep your UTR safe! (but if you lose it you can call HMRC and they’ll tell you what it is).
Now you’re registered and ‘in business’ you need to keep all your paperwork!!
If you buy something for work, keep the receipt!!
If you give someone an invoice, keep a copy!!
If someone gives you a payment slip, keep a copy!!
Try to keep your paperwork in date order and in some kind of folder or document wallet. It will SAVE YOU MONEY!!
For every £100 you spend on things for work, you could save £20 income tax.
Personal Allowance:
Everybody can earn a certain amount and pay NO INCOME TAX on it. This year (17-18) you can earn £11,850 before you have to pay any income tax. (but be aware, you might have to pay a bit of National Insurance to pay for things like the NHS and go towards your State Pension).
Everything you earn between £11,850 – £46,350 is taxed at 20%
Everything between £46,350 – £150,000 is taxed at 40%
Everything above £150,000 is taxed at 45%
More info here: https://www.gov.uk/income-tax-rates
How do you work out your tax?
Easy, get a good bookkeeper / accountant to do it for you!
Every year, take all your paperwork to your accountant / bookkeeper.
What we really mean is, bring it to us!
We try to be a cheap accountant for self-employed in Southampton
If you want to do your own accounts it can get complicated but that doesn’t mean you shouldn’t try!
You need to work out how much you earned in total (this is your GROSS earnings – before any tax is taken off).
Then you need to work out how much you spent on work related items (but be careful, you can’t include everything you might think you can and you can probably include things you didn’t know you could!)
Once you know what you earned and what you spent you might have enough information to submit your Tax Return – but if your business is a bit more complicated, there might be many other things to be aware of! If in doubt, talk to an accountant!
The Tax Year
The Tax Year runs from 6th April – 5th April every year. Weird right?
After the 5th April every year you have until 31st January the following year to submit your Tax Return. Loads of time! But don’t be fooled, time flies….
So remember, after 5th April every year, gather your paperwork together for the previous Tax Year (April to April) and bring it to us!
If you need help or have any questions, give us a call on 023 8000 8 9 10