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What do I need to do when I start a self employed business?

Starting a new business is a very exciting time but are several things you need to do with regards to your accounting. This post explains from a tax and bookkeeping point of view what needs to be done:

Register with HMRC

When you’re employed, you’re employer takes care of all your tax and National Insurance contributions. When you’re self employed you need to keep your own financial records (I’ll tell you more about this later) and inform HMRC. They will then tell you what tax and national insurance is due. So when you setup it’s important you tell HMRC you’re in business. If you’ve never filed a self assessment tax return then you need to register. You can do this here – https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed – This must be done by 5th October in your business’ second tax year. Failure to do so will result in a fine. However, if you already fill in a self assessment tax return then you can just inform HMRC of your new business on your next tax return.

What records do I need to keep?

Before you start your business, it is likely that you will already have incurred some costs. You may have spent money on training costs, leasing of business premises or equipment costs (the list is almost endless). Many of these costs can be deducted from your profits which in turn will potentially lower your tax bill.

Then once you’re up and running you’ll have the regular running costs of your business. It’s important you keep receipts and documentation for every single transaction you make for your business. Not everything is deductable, but that’s the job of your bookkeeper and accountant. They will look through all of your transactions and work out what can and can’t be claimed.

As well as expenses, it’s important that you keep full records of your income. Where did it come from? What was it for? Was it cash, cheque, bank payment?

Finally, to make things more transparent and easy to manage, it’s important that you have a separate bank account for your business. It doesn’t necessarily have to be a business bank account (depending on your business needs), often a separate personal account is fine. This means your business and personal spending don’t get mixed up.

When will you pay tax?

The tax year runs between the 6th April to the following 5th April. Your tax return for that year then has to submitted by the 31st January the following year (providing it is being submitted online). The return basically tells HMRC how much money you’ve made, how much you’ve spent, and what Capital Allowances (deductions) you’re entitled to.

HMRC will then tell you how much tax you have to pay. This payment is also due by the 31st January, along with another 50% which goes towards the following years tax payment (payment on account). You will then be required to pay another payment on account of 50% on or before 31st July. When you submit your following years accounts, the amount of tax you owe may be more or less than the previous year. The difference between that balance and what you’ve paid on account will either be due or owed, along with 50% to the next year payment on account, the cycle will begin again.

It’s a good idea to keep on top of your accounts rather than waiting until the January. Many small business owners get caught out and haven’t saved sufficiently making January a really tough financial month for them. If you regular get your accounts to your bookkeeper, you know exactly what your liabilities will be and can plan accordingly.

Where do I keep my records?

The more organised you can be with your records, the less your bookkeeper will need to do for you (meaning reduced costs for you!). You may decide to keep spreadsheets of your records which you can then send to your bookkeeper for reconciling with your accounts and preparation of your tax return. It is increasingly common for businesses to use accounting software to record transactions. Sage, Quickbooks, and Xero, to name a few, all offer montly subscription services for software to track your income and expenses. Again, the more information you enter into these services, the less your bookkeeper or accountant will need to do for you.

Do I need a bookkeeper or accountant?

In short, no! Now that may seem an odd thing for a bookkeeper to say, but legally you don’t need to have a bookkeeper or an accountant. However, our job is to organise your accounts for you and to make sure everything’s in order. A good bookkeeper or accountant will often be able to spot additional things you can claim for that you may have missed, and their knowledge of the tax system can often save you money on your tax bill as well as keeping you on the right side of the law.

If you need help or advice in getting setup, please give us a call for a free chat to see if our services can help you – 01782 906001