Accountancy tips for self employed

The thought of being self-employed can be quite daunting. There is a lot you need to think about such as paying your own taxes, the type of business you want to run and budgeting. Keep reading for advice on how to get started with being self-employed.

There are both advantages and disadvantages to becoming self-employed.  You get to do something that you are passionate about, have the flexibility to choose your own working hours and have more control over your income. However, this means you may have to work long hours and weekends, deal with irregular income

Different types of self-employed businesses

Sole – trader

This kind of business structure is the most straightforward.   You get to keep any after-tax profits and run your own business as an individual. However, you are personally responsible for any debts associated with the business your personal business assets are not considered separate. In order to become a sole trader you just need to register as self-employed with HMRC.

Private limited company

Unlike being a sole trader, a private limited company is a completely separate entity from the people that own it.  The company will need to be registered with companies house and will have to pay corporation tax on any profits. The after-tax profits are then divided up between any shareholders.

Directors will have to complete a self-assessment and the company will need to submit its annual accounts to companies house and also a tax return to HMRC

Partnership

A partnership is when you go into business with other people. You share responsibility for the business.  Each partner will need to submit a self-assessment tax return for their share of the profits. A partnership self-assessment for the business will have to be submitted for the business. This would be done by a partner that has previously been nominated.

Limited partnership

A limited partnership must have one general partner and one limited partner. Limited partners are only liable for the amount they originally invested in the business whereas the general partner is responsible for running the business and the partnership’s debt.

Limited liability partnership

A limited liability partnership is a combination of a limited company and a partnership. It can be set up by two or more people but it must be registered with companies house. Each shareholder has to pay tax on their share of the profits

Where to start when setting up your business

Come up with a budget

Think about all the costs it takes to get your business up and running and then to become operational.

Have a business plan

If you’re looking for funding or a loan to help get your business off the ground you will need a business plan to present to banks or potential investors. A business plan will also help you set clear objectives and develop ideas.

Having a business bank account

You don’t need to have a business bank account if you are a sole trader or in a partnership, however, when it’s time to do a tax return it’s a lot easier if your personal finances are separate from your business finances.

Limited companies have to have a business bank account.

Keeping your records

Keeping good records is very important; you can find tips on how to keep good accounting records from our previous blog here.

What expenses can you claim?

Not all the expenses you incur from being self-employed are allowed expenses. HMRC have rules on what you can and can’t include.  Examples of these expenses include:

Office expenses

Such as stationery, postage and Printing expenses (printer ink).

Premises expenses

You can claim for expenses such as rent, repairs and maintenance, utility bills and property insurance. However, you can’t claim for buying or building your business premises.  If you run your business from your home you can claim for part of your utility bills.

Travel expenses

Travel cost from trains, buses, planes or taxis can be claimed for along with accommodation such as hotel rooms and meals during business trips.  You can also include business-related car or van costs such as fuel, repairs, and insurance.

It’s important to note that you cannot claim for the cost of traveling between your home and work.

Legal and Professional Costs

This includes services such as an accountant, solicitor etc.

Business insurance

This includes things like public liability insurance.

Clothing expenses for self-employed

You can claim for necessary protective clothing and uniforms. However, you cannot claim for everyday clothing that you wear to work.

Staff costs

This includes expenditure such as wages, pension contributions, agency fees, and national insurance contributions

Subscriptions

You can claim for subscriptions to professional bodies if they’re relevant to your business

Mobile phones

If you use your mobile phone for your business you can claim some of your costs for this

If you need any advice or help becoming self-employed, please get in touch with us here where we will be happy to help