A lot of people may be thinking about becoming self-employed this year. Job uncertainty is high and the job market is not a friendly place at the moment. Here are a few things you may need to know if you do take the plunge.
The tax year for self-employment runs from 6th April to 5th April. (There is a really complicated explanation for this, but it goes back hundreds of years and involves changing from Roman to Gregorian calendar, so we just accept it and move on even though it’s a bit mad!)
This means that if you start in September your first year would run from September to 5th April and you would file a part year.
You need to submit your income and expenditure by the following 31 January (ie 06/04/20 – 05/04/21 needs to be submitted by 31/01/22) You don’t have to wait though. You can file any time after 10th April usually. The advantage of doing it early means you know how much tax you need to pay and still have until 31 January to pay it over.
Make sure you can access your online HMRC account. You need to use the activation code they send you within 28 days. Many people don’t, then leave to the last minute. They try and log on at the end of January and then miss the deadline because they are waiting for a new activation code and end up with a fine.
Make sure you keep track of all your income. Best practice is to have a bank account solely for business use. Try and get all your clients to pay by transfer. It’s the easiest way to keep on top of it. If you are going to be given cash payments, make sure you use a notebook to keep track. If HMRC ever asks you to prove your income, a properly kept record is essential.
Quick Note on VAT
You don’t need to register for VAT until your income exceeds £85k. Some people choose to register before this as they can reclaim VAT on purchases, but it needs careful consideration. Once you’ve registered you need to charge it on all of your sales, pushing up the cost to clients or taking the hit yourself. Submitting quarterly VAT returns also pushes up your admin and adds complications. Filing late can get you fines and paying over late to HMRC can cost you in interest.