‘Tax doesn’t have to be taxing’, says HMRC’s public-friendly advert for personal tax self-assessment. Perhaps not, but the prospect of doing your own returns, coupled with other considerations like business accounts, expenses and budgeting, can make the prospect of starting your own business rather daunting. The good news is that, providing you’re organised, it’s actually quite straightforward.
Tell HMRC what you’re doing
It’s important that you inform HMRC as soon as you start working for yourself, otherwise you could be subject to an initial penalty. You can register as self-employed through their website, over the phone on 0845 915 4515 or by post. The website also gives a wealth of useful information on getting started in self-employment.
One of the downsides of working for yourself is having to take care of your own taxes. Freelance writer Rebecca Thomson says: “At first glance, this can seem almost overwhelming, but there are lots of sources of help and information available. The most important thing is that you remember to set aside money every month for your bi-annual tax bills, so you don’t get caught out.” The Citizen’s Advice Bureau gives a comprehensive run-down of income tax here and has advisors available in their nationwide branches that can provide help and support.
Organise your finances
Without an accounts department to oversee everything, it’s vital that you’re on top of what’s coming in and going out. If you’re starting small, then a basic account from any bank is a good idea – clients can pay their invoices into it, and at the end of each month you’ve got a clear picture of your earnings. “After I know how much I’ve earned, I pay myself a salary into my personal account,” says Rebecca. If you’re starting out as a limited company or partnership, you have to choose a dedicated business account. There are loads available, each offering introductory deals (free banking, for example) and added extras (some offer free seminars or start-up resources). It’s important to have a good relationship with your bank, but also consider things like interest rates and monthly fees. Don’t necessarily pick an account because you’re already a personal customer. And no matter what kind of account you choose, make sure you have a system in place to keep track of invoices. It’s no good having a new account if your clients aren’t paying into it!
One of the financial breaks self-employed workers enjoy is the ability to claim expenses against tax. Sadly, it’s not as straight-forward as simply deducting claims from your tax bill, but it certainly makes the twice yearly visit from the tax man a bit easier to bear. Check out a list of tax-allowable expenses here and remember to keep hold of your receipts. Logging everything at the end of each month makes it easier, too.
“At the start, you need as much help as you can get,” says Rebecca. “So take advantage of grants and funding.” Small business UK gives comprehensive guidance on the funding application process, but you’re best off visiting your local Business Link site (http://www.businesslink.gov.uk/bdotg/action/home) to see what’s available in your area. If you anticipate a low revenue in the early days, check out your Tax Credit entitlement, too. Also, if you’ve been unemployed for 13 weeks or more prior to starting your business, you could be entitled to a Self-Employment Credit of £50 a week.