self employed

First 5 Steps to Self Employment

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For many people, becoming their own boss is the dream. They get to work in an industry they love, choosing their own clients and – better yet – their own hours. The only problem is that becoming self-employed isn’t that straightforward. At least, not on the surface.

After all, having to evaluate your income and manage your own tax affairs can be daunting. That’s why we’ve asked Mike Parkes from GoSimpleTax to help set your mind at ease, by providing his first five steps to self-employment.

  1. Register as self-employed

First things first, you need to let HMRC know that you’ll be paying your own Income Tax and National Insurance contributions (NICs) moving forward. You’ll need to do this as soon as possible – no later than the 5th October after the end of the tax year in which you first became self-employed. So, if you become self-employed between 6th April 2021 and 5th April 2022, you have until 5th October 2022. It’s a relatively simple process though. All you need to do is register on the GOV.UK website, or fill in an on-screen form to then post to HMRC.

  1. Get to grips with your tax bill

Next, it’s time to understand what tax you’ll be responsible for paying. First is your Income Tax, which is determined by your taxable income (that is, your earnings minus any allowable expenses and deductions). HMRC takes this information from your Self Assessment tax return and calculates your tax bill accordingly.

The amount of National Insurance you pay also depends on your taxable profit (income less expenses). Instead of the Class 1 NICs that employed people make, you’ll pay Class 2 (unless you earn less than £6,515 a year) and 4 (if you earn profits over £9,569 a year). See the effects of self-employed income tax and NICs at Employed and Self Employed.

  1. Choose the correct insurance cover

This largely depends on which industry you’re in, but there are some general policies that all sole traders should consider. For example, if you employ another person, even if it is just part-time support to help complete projects, you are legally obliged to take out employers’ liability insurance. There is a significant fine for sole traders caught failing to have this.

You should also consider taking out public liability insurance. This protects your business should a client, customer or member of the public decide to take legal action. In the event that they suffer an injury at your premises, or you suffer an injury at their premises, it would also provide cover for damage to property.

Finally, you should consider insuring yourself for professional indemnity. This is where you protect yourself from a client lawsuit levelled at you on account of them being unhappy with the work you have done or the support you’ve provided.

We would always advise that you seek specialist advice from a suitably qualified insurance broker to discuss your requirements.

  1. Identify any relevant tax relief in your line of work

Now you’re square with HMRC, and you’ve covered yourself legally, it’s time to enjoy the benefits of self-employment. All sole traders are eligible to claim relevant expenses to reduce their profits – and the lower the profits, the lower your tax bill will be.

After you’ve incurred the expenses, and inputted the total amount on the relevant tax return, just be sure to store the receipts somewhere secure should HMRC request them. Software like GoSimpleTax makes this easy, by allowing you to take a picture of receipts and save them together with invoices and bank statements in the cloud.

  1. Record income and expenses for your first tax return

A large number of sole traders log their income and expenditure towards the end of the tax year, causing unnecessary stress and a much longer tax return submission process. However, with real-time record-keeping, you can input this information throughout the year. This enables you to forecast your tax bill and better manage your cash flow. Again, with Self Assessment software, this takes no time at all.

In order to be successful as a sole trader, you need to be maximising your take-home pay and steering clear of HMRC penalties. By following the above steps, you achieve both. So, are you ready to finally become your own boss?

About GoSimpleTax

Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.

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Friday, May 14th, 2021 Income Tax, National Insurance No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

The IR35 changes: Who will be impacted by the reforms?

The off-payroll working (IR35) rules for the private sector have changed. These delayed reforms came into effect from 6 April 2021 and could significantly impact some contractors.

That said, according to research from EY TaxChat, very few contractors know what the changes actually mean for them. Of the 500 self-employed workers surveyed, only 14% claimed to be up-to-date.

At The Salary Calculator, we’ll have you clued up in no time at all. This article will explain:

  • How the IR35 rules have changed
  • Why the changes have been introduced, and
  • What determines IR35 status

How have the IR35 rules changed?

The IR35 rules exist to ensure that contractors and those who hire them pay the correct amount of tax. It targets those who provide their services via an intermediary, such as a Personal Services Company (PSC).

The rules on who is classified as employed have not changed. However, the burden of responsibility for who determines this status has changed. 

It is now the responsibility of medium-sized and large businesses to determine the employment status of a contractor. 

These businesses must outline the reasons behind the contractor’s employment status in a Status Determination Statement. A contractor has the power to dispute this.

The changes do not apply to small businesses. To be classified as a small business, a business must have:

  • A maximum annual turnover of £10.2 million 
  • A balance sheet total of £5.1 million or less, and
  • 50 employees or less

IR35 does not apply to sole traders. 

Why have the IR35 changes been introduced?

According to the HMRC, those who are “genuinely” self-employed should not be concerned by the changes. The new rules were introduced to ensure that more businesses are compliant with the law. 

Specifically, the reforms seek to crack down on companies who hire contractors through “disguised employment” for tax purposes, which, according to HMRC, is rife. Data shows that only around 10% of Personal Service Company (PSC) owners have assessed their status as employed.

What determines IR35 status?

IR35 status is largely determined by the level of supervision, direction and control a contractor has. 

So, if a contractor has the power to determine their working hours, with little or no oversight and only provides work outlined within the contract, they are likely to fall outside of IR35.

Other factors include whether or not the contractor provides their own equipment, if they are paid on a project-by-project basis, their level of exclusivity and mutuality of obligation (MOO).

It can be a bit of a minefield figuring out where you stand when it comes to IR35. But, don’t worry, there are resources out there to help.

HMRC has a tool called CEST which can help you work out whether or not IR35 applies. That said, it’s important to note that CEST should only be used as a guideline and does not provide a definitive answer on your IR35 status.

For more information about where you stand, head over to Employed and Self Employed to learn about the tax implications of different employment statuses.

 

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Tuesday, May 4th, 2021 Income Tax, National Insurance No Comments

Pandemic-related changes to tax return schedules

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We appreciate that it’s difficult to stay on top of tax law at a time of such uncertainty. That’s why we’ve asked Mike Parkes from GoSimpleTax to break down the biggest support package of 2020, and how it could impact you in 2021.

Whilst the support from the government has been welcomed with open arms, by most, it is worth noting that these grants are taxable. Each grant should be reported on your tax return, as income, in the accounting period they were received. This means there may be tax and NIC due on these payments and therefore it may impact your tax liability due 31 January 2022.

The extension of the Self-Assessment filing deadline

Sole traders were also made exempt from a late filing penalty, provided that they filed online by 28th February 2021. However, this has proved somewhat confusing as self-employed individuals were still expected to pay their tax bill by 31st January.

Any individuals that failed to do so would be charged interest from 1st February on any late payments. This became even more costly if you delayed your payment on account from July 2020 (another COVID-19 response measure), as the two payments were both due on 31st January 2021 and each accrued interest.

Important change to be aware of

In a further curveball announced 19th February HMRC confirmed that the initial 5% late payment penalty on self-assessed tax would not be charged as long as the tax is paid, or a time to pay arrangement is agreed by 1st April 2021. The self-assessment timeline is now:

  • 31 January – Normal Self-Assessment deadline (paying and filing)
  • 1 February – interest accrues on any outstanding tax bills
  • 28 February – last date to file any late tax returns to avoid a late filing penalty
  • 1 April – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment surcharge
  • 1 April – last date to set up a self-serve Time to Pay arrangement online

If you’re unable to pay your tax bill in time, the government is advising you to pay in instalments. This enables you to spread the cost of your tax bill over a few months. Bear in mind that you must owe £30,000 or less and have no other payment plans or debts with HMRC. Your tax returns must be up to date, and you also have to sign up before 1st April 2021. It’s worth noting that you’ll have to pay interest too.

As there is currently no information concerning the rules for the fourth SEISS grant, we here at GoSimpleTax are urging all our users to submit their tax return immediately. After all, there’s a strong possibility that they could determine your eligibility, and you must do it in order to set up a payment plan.

About GoSimpleTax

GoSimpleTax software submits directly to HMRC and is the solution for self-employed, sole traders, freelancers and anyone with income outside of PAYE to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Try today for free – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

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Tuesday, February 23rd, 2021 Income Tax No Comments

What Do I Need To Complete My Tax Return?

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If you have earnings outside of PAYE, chances are you’ll need to file a tax return. This is an annual submission, due on the 31st January, that lets HMRC know your taxable income and how much tax you need to pay. If you fail to submit it or forget to pay your tax bill, you could face a fine.

So to ensure that doesn’t happen, we’ve asked Mike Parkes from GoSimpleTax to explain the tax return process and keep you on the right side of the taxman.

Get registered with HMRC

If you’ve been a sole trader or received income from other sources (like property) before, you may have already filed a tax return. If not, you’ll need to register for Self Assessment with HMRC.

Once complete, you’ll receive a Unique Taxpayer Reference (UTR) number that identifies you and enables you to submit a tax return. When your UTR arrives, you’re able to set up your Government Gateway account. It’s here that you’ll file your return (either manually or through software).

Bear in mind that it could take up to 20 days to receive your UTR, so be sure not to leave it too late.

Have all your documents to hand

Now you’re registered, the next step is to prepare the information you need to complete your tax return. This includes:

  • Your UTR
  • Your National Insurance number
  • Employment income and benefits received during the year (forms P60 and P11D)
  • Any income you’ve received as part of a self-employed business
  • A total of any rent you’ve received
  • Certificates detailing interest you’ve received from your bank
  • Any income you’ve received from overseas
  • Any income you’ve received as part of a partnership (one partner should also file a tax return for the partnership as a whole)
  • Information about any dividends received
  • All taxable benefits you’ve received from the state
  • All capital gains you’ve made by disposing of assets
  • Information about any Gift Aid payments you’ve made
  • Details of any pension contributions (you may be able to claim some of this money back)
  • Details of any tax payments you’ve already made this year

All of the above information only needs to refer to the tax year that you’re filing for. In other words, if you’re filing before 31st January 2021, the period will cover 6th April 2019 to the 5th April 2020.

Don’t forget your expenses

While it’s important to keep track of your income, it’s equally important to keep track of your expenses. Any expenditure you’ve incurred during the year may be allowable and used to lower your tax bill. Whether you’re self-employed or a landlord, HMRC have prepared lists of regular expenses you’d expect to see.

You won’t need to send any evidence with your tax return. However, it’s important that you keep your records safe for up to six years in case HMRC investigates your tax return.

Pay your tax bill

Once you’ve filed, HMRC will calculate your total tax liability. Obviously, if you file early, you’ll be aware of your liability well ahead of the payment due date, allowing you to manage your cash flow better.

There’s no legal requirement to file early though – both the tax return and any money you owe are due on 31st January following the end of the tax year.

This tax year, however, HMRC are allowing some Self Assessment users affected by COVID-19 to spread their tax bill over a period of 12 months. Users that file early will be able to determine how much they can pay right away, and then how much they’ll need to pay each subsequent month, using the government’s Time to Pay service.

You can check your eligibility and set up your payment plan by logging in to the Government Gateway. Alternatively, you can call the Self Assessment Payment Helpline on 0300 200 3822 and talk through your options.

That’s it! You’ve officially completed your tax return. Now to prepare for the next one…

About GoSimpleTax

GoSimpleTax software submits directly to HMRC and is the solution for self-employed sole traders and anyone with income outside of PAYE to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Trial the software today for free – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

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Monday, January 11th, 2021 Income Tax No Comments

Why You Should Go Digital For Your Self-Assessment

There are always people who prefer paper-based accounting and self-assessments, reluctant or uninterested to learn to use new tools, they prefer physical copies over digital documents. But this could come at a cost.

By transitioning to digital, your accounts will be easier to manage and they’ll take a fraction of the time to process, enabling you to work on other elements of your business.

We’ve asked Mike Parkes from GoSimpleTax to explain more, and highlight how you can benefit from going paperless.

Real-time answers

Paper, by nature, is chaotic. You’ll need to file and accurately record your accounts – up to six years of your accounts, in fact, to ensure that you are covered if HMRC launch an investigation into your tax return. That’s sure to take up a lot of space, and it also doesn’t provide you with an easy-to-access overview of what you owe the taxman.

Digital files, on the other hand, are much easier to read. Especially if you invest in a tax return solution like GoSimpleTax. Tools like these allow you to record your income and expenditure in real time, meaning that whenever a you wish to know your tax liability it is available in a few short clicks.

Plus, as some tax return software providers also highlight any opportunities to claim tax relief, there’s an extra incentive for you to stay on top of your record-keeping.

Record income more easily

Another benefit of going digital is the ease with which you can record your income. At the moment, you have to log each of your paid invoices into your tax returns. But with invoicing tools, that all changes.

By using software to request payment, any invoices paid will automatically update your accounts. For example, if you receive a payment for an invoice you sent, your predicted tax bill will be automatically updated based on the amount of that payment. This saves you time and also unifies two of your businesses most important admin tasks: invoicing and the tax return.

You can also use these digital tools to understand when to schedule sending invoices as well as the follow-up emails to ensure that customers pay on time. Integrations with online payment solutions like SumUp and PayPal can additionally help your customers pay you more quickly using a debit or credit card, saving you from chasing payments in the first place.

Each of these payments will then filter into your tax returns, making the 31st January tax return deadline much easier.

Enhance security

Tax return and invoicing software also allows you to log all income and expenses in the system. That means no more hoarding scraps of paper – instead, you can take photos of your expenditure and you can upload it to the cloud, where it’s secure and less likely to be stolen.

Be MTD-ready

Last but not least, going digital means you’ll be ready for upcoming legislation. Making Tax Digital (MTD) was a government initiative launched in 2019 to gradually digitalise the UK tax system. It started with MTD for VAT, which stipulated that VAT-registered businesses with a taxable turnover above the VAT threshold would need to digitalise their accounts by 2022.

Soon this will extend to all self-employed individuals with an annual income above £10,000. The reason for this is that the government believes, by using software to submit tax returns, there will be fewer avoidable mistakes. These mistakes cost the government £8.5 billion in 2018/19.

By adopting this software now, you’re well ahead of the MTD for Income Tax roll-out date. So, not only will you be compliant with the incoming legislation, but you’ll also benefit from a streamlined workload well ahead of your competitors.

About GoSimpleTax

GoSimpleTax software submits directly to HMRC and is the solution for self-employed sole traders and anyone with income outside of PAYE to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Trial the software today for free – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

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Wednesday, December 16th, 2020 Income Tax No Comments

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