Self-employment and HMRC: What You Need to Know and Do

If you’re thinking about going self-employed, one of the scariest parts of the whole business can be the paperwork. If you’ve always been employed and used to your company deducting your tax beforehand, realising you’re suddenly responsible for your own payments can be frightening. Don’t panic, though – it’s much simpler than you might think. Here’s our straightforward guide to what you need to do.

Do you need to register at all?

If you sell items on eBay or make and sell your own crafts, you may not feel like you’re running a business. HMRC, though, might see it differently. Even though you haven’t officially set up your own company, if you run your business for yourself and are responsible for its success or failure and are in charge of how and when you work, you could be classed as self-employed. HMRC have plenty of other guidelines about how to decide when you’re ‘officially’ self-employed, so take a look if you’re not sure.

If you make more than £1,000 from your business in a 12 month period (starting on 6 April and ending on 5 April), then you’ll need to register for self-assessment.

What records do you need to keep?

First of all, you’ll need to keep a record of your business income and expenses. This doesn’t have to be fancy – you can use an Excel spreadsheet or similar. You’ll need a sales ledger to record your everyday sales.

Use your sales ledger to record your everyday sales. You don’t need to record the name of the purchaser, but it may help you to find a specific transaction again if you have a query on it later!

In addition to your sales ledger, you’ll also need to keep track of your expenses. These include money that you pay for crafting materials, and any other expenses such as flyers to advertise your business or the cost of booking a stall at a craft market.

If you work from home for at least 25 hours a month, you can also claim between £10 and £26 a month as a proportion of your utilities costs. You can also claim business mileage (for example, the cost of travelling to the depot to pick up craft supplies, or travelling to the craft market). If you do decide to claim any business mileage, though, your vehicle must be insured for business purposes, so have a chat with your insurance company.

Useful resources to help you keep track

If you’re a small business or sole trader, your first port of call is HRMC’s own website – it’s clear, simple to follow and will contain 99% of the answers you need. Otherwise, there are plenty of apps and software out there to help you keep track, and most of it is either inexpensive or free.

GnuCash is free software for personal and small business use, and will help you keep track of bank accounts, profit and loss and much more. It’s run on standard accounting principles so you’ll have all the info you need for your tax return. Another similar (free) application is Money Manager Ex, which is easy to use.

You can do all your accounting in Excel if you like, and Excel has provided a number of readymade templates that you can just fill in.

Start Up Britain is a useful resource for advice, and will put you in touch with a local organisation if you need some guidance on how to start up or grow your business.

Tax returns

If you keep all your accounting records correctly, then your annual tax return need hold no terrors! The tax year runs from 6th April one year to 5th April the following year. You can choose to file your return either as a paper copy or online – online is much the easiest, and gives you an extended deadline of 31 January.

First, you’ll need to visit the HRMC website to register for self assessment. You’ll be sent a unique code which you’ll need each year to file your return. Before the deadline, you’ll need to transfer the figures from your own accounts onto the tax return and submit it. The system will automatically calculate the amount of tax you owe or are due as a refund, and will also send you reminders to your email address if the filing date is growing near.

The whole process has been designed to be as straightforward as possible, and there’s also a helpline if you get stuck. Tax needn’t be taxing, and as long as your business is straightforward you shouldn’t need to hire an accountant.

(Image courtesy of Pixabay)