This week I’ve been helping a client who has started freelancing to register themselves as self-employed so I thought I’d put some info out there in case any of you are in the same boat and don’t really know where to start!
It’s actually not as tricky as you might think to set yourself up as self employed, honestly, it’s just a lot of really annoying (but easy!) things you have to do in order to stay legal. Because let’s face it, no one likes getting a big bill at the end of the year, do they? Cheques, maybe. Bills..not so much.
WHEN SHOULD YOU REGISTER AS SELF-EMPLOYED?
If you’re even thinking about earning money outside of a paid job with a salary, it’s best to register yourself as self-employed. No matter how much you’re earning – whether you live off it or buy a coffee from it – you have to register yourself as self employed. To do this, all you need to do is set up a PAYE (Pay As You Earn) system to pay yourself with your earnings.
IS THERE A TIME LIMIT TO REGISTER AS SELF-EMPLOYED?
There’s no specific time to register yourself as self-employed, but you need to do this ASAP once you start earning. You do however have to make sure you complete your Self Assessment tax return (or let me do it!) and pay your tax bill on time, else the tax man will come a-knockin.
WHAT SHOULD YOU DO ONCE YOU’RE REGISTERED?
Once you’re officially self-employed, the next step will be to fill out a self-assessment tax form, which basically documents your earnings and spendings. The self-assessment tax form is actually really simple to fill out as long as you stay on top of your earnings and expenses throughout the year (again, this is a service that I offer – just need your statements every month), so be sure to note down any income and keep hold of your receipts to act as proof for anything you want to claim back on. You may also have to pay towards your Class 2 National Insurance Contributions and VAT (but hey, scroll down for more info on that).
WHAT IS THE TAX ALLOWANCE FOR A SELF EMPLOYED PERSON?
The Standard Personal tax Allowance is £11,500 which is the amount of money you’re allowed to earn without having to pay to pay tax on it. If you’re earning less than that, you shouldn’t have to pay tax but if you’re earning more then you’ll have to pay 20% on whatever you’re earning on top of the standard rate.
When it comes to paying your Class 2 National Insurance Contributions it all, again, depends on how much you earn. If you’re earning over the threshold of £8,164 per year you’ll have to arrange your NI payments either through direct debit or by paying the amount in the payment request/invoice that the HMRC will send you.
Bear in mind that if your turnover is more than £83,000 a year you may have to pay VAT.
HOW DO YOU REGISTER FOR SELF ASSESSMENT?
If you’ve already registered yourself as self-employed you’ll already be registered with Self Assessment and National Insurance Contributions. You should receive two letters within ten working days – the first will include your Unique Taxpayer Reference and it’ll confirm that you have a Self Assessment record set up as well. You’ll need to keep hold of this letter since it includes your UTR, so stash it away in a file for a later date. The second letter will include an activation code that will allow you to get online. You need to use that within 28 days otherwise you’ll have to go through the entire thing again. Which we don’t want to do, cause it’s kind of boring, right? Right.
HOW DO YOU DECLARE YOUR INCOME AND WHAT ARE THE DEADLINES?
To declare your income all you need to do is fill out a Self Assessment Tax Return (or get me to do it for you!!) by the end of every tax year (which is the 5th April). You can do this either by going online or filling out a physical form, which you can send off by post or you can do it on the website. This is the time that you’ll need to get hold of all your bank statements and receipts so that you can add up your earnings over the past year. All you need to do is add up what you’ve earned, and essentially subtract any business expenses that could be exempt from tax. To put it short, you add up the earnings, and minus the expenses. The number you end up with is the number you give to the HMRC.
WHAT CAN YOU CLASS AS BUSINESS EXPENSES?
Business expenses are typically anything that aids your business that you have to initially have to pay for. This could be anything from equipment such as laptops and cameras, to travel tickets. If you’re uncertain at all it’s best calling the HMRC directly for more information or I can give you specific advice on this.
Hope you found this useful! You can always contact the HMRC – or me -with any questions!
Thanks for reading!
To get in touch to arrange a free consultation – just call Richard on 07970 298253 or click here and we will get back to you.