Tax and National Insurance for self employed

Tax and National Insurance for self employed

Getting started with Income Tax and National Insurance

If you are self-employed, you will need to pay Income Tax and National Insurance on what is known as taxable income.

Taxable income is mainly the profits you make from working for yourself.  This means you pay tax not on the entire income you make in your business but the difference between the income you make and the amount you spend on expenses for running the business.

You will pay Income Tax and National Insurance throughout the HMRC Self-Assessment system and will need to complete a tax return following the end of every tax year.

As soon as you start in business you will need to register with HMRC.

Once you have registered, HMRC will send you a Self-Assessment Unique Taxpayer Reference which you will need to quote whenever you contact them.

The deadline by which a tax return is due to be completed and sent to HMRC is dependent upon whether you choose to send your tax return in on paper on online.  Paper returns must reach HMRC by 31st October and online returns by 31st January following the end of the tax year to which the tax return relates.

There are late filing penalties if you don’t send in your tax return on time.

There are also deadlines for paying the tax you own. If you don’t pay on time, you may have to pay interest and late payment penalties.

You must maintain adequate records when you are self-employed such as retaining invoices you have issued and keeping receipts for any purchases you have made for the business.

Records should be organised in separate accounting periods.  The last date of an accounting period is known as your accounting date.  This is the date that you will close your accounts each year. Your business accounts will be prepared from the details recorded during your accounting period.

Whichever accounting period you choose, having a good record keeping system in place will make things easier when you come to complete your Self-Assessment tax return.

When doing your tax return, you can deduct your business expenses from your income to reduce the amount of tax you have to pay.

Basic business accounting

Basic business accounting

Basic business accounting

Every business, no matter how large or how small, needs to keep accounts and review them at regular periods in order for them to known how much profit or loss they have made.  They will also be able to use these figures to help predict the future of their business and if any financial problems are looming.  This is why every figure should be recorded and accounted for, down to the last penny.  Here are a few tips for you to set up some basic business accounting.


Choose a basic business accounting system

Be consistent with your accounting system.  Choose one system and stick with it.  If you run a number of different accounting systems, things are in danger of getting missed and lost.  It does not matter whether you use a manual system or automated software, just keep everything in one place.


Keep records up to date

It is all too easy to leave sorting out your records and accounts until a later date but the longer you leave it, the more difficult and cumbersome it will be.  Keep track on a daily basis if possible of everything you have spent and earned in that day.  As an absolute minimum, book out time each month to collate your figures.  The longer time period you leave, the more difficult to remember what those odd expenditures relate to.  Have a system for keeping your receipts and invoices in order until you come to the time of recording them.


Balance the books

Each month, print off your bank statements and double check the money in and out against your accounting records.  This is where you will be able to identify if you have properly accounted for everything coming into and going out of the business.  Again, don’t leave it longer than a month to check or it is all too easy to forget what has happened where there may be an error.


Have a backup in place

You may swear by a manual paper system but think what would happen in the worst case scenario and your office suffered from a fire.  Also, paper is easy to lose.  Log all your paper entries on to a computer database and ensure you carry out a regular backup.  Alternatively, you may wish to use one of the many cloud based accountancy software packages which will prepare accountancy reports for you and have inbuilt backup in case of disaster.


By getting a basic business accounting system in place from the start will save you time and effort when it comes to your end and the preparation of your financial accounts.  And your accountant will thank you for it too.



Thinking of starting a business

Thinking of starting a business

Are you thinking of starting a business?

If so, there are a few considerations to bear in mind before ploughing ahead in order to give your business idea the best chance of success.

Create a business plan.

It is very easy during the initial enthusiasm of thinking of starting a business to jump in with your new idea and overlook the finer details that can help indicate the likelihood of success.  Many think that business plans only need to be written when trying to raise finance, but the actual writing out of a business plan can help you define your business idea, assess it’s viability, define your goals and plan how you are going to achieve them.  It will help you think about your competition and what you are going to do to stand out amongst them.  It will help identify where you product or service will be placed in the market and what people are likely to pay for it.  Most importantly it will help you plan your cash flow and how you are going to survive in the early days until you get it fully off the ground.


Beware of going ‘all in.’

There are many people who have used their credit cards to the max or re-mortgaged their homes to fund their business idea.  For the rare few, this gamble paid off.  But for many more, this led to tears and financial ruin.  Think carefully before putting everything on the line for starting your business.  Starting a business is stressful enough as it is without the additional worry each month that you may be on the verge of losing your home.  Do your research, write your business plan and consider carefully how your business will be funded.


Test the waters before giving up the day job

To minimize the risk of failure, try testing your business idea out on a small scale before you throw in the towel on your day job.  There are numerous small business owners who remained in their day job whilst building their own business slowly in the evenings and at weekends.  Yes, it will take you longer, but the risks are far lower and you will still be able to earn a salary to pay the household bills each month.  A word of warning though, do check there are no restrictions in your employment contract restricting you from carrying out work elsewhere.


Save for a rainy day.

Even the most successful of start-up businesses can be caught in an unexpected market downturn.  And there is always the unexpected scenario or emergency that no one could have predicted.  From the moment of thinking of starting a business, make sure you build up a financial buffer and continue when your sales are good so that you have something in reserve in case the lean times hit.  If the unexpected does happen, you will still be responsible for the business bills.  Having a cash buffer will take the pressure off if the bad times hit and could mean the difference between your business surviving or failing long term.


Protect yourself.

Too often I hear ‘it will never happen to me’ but every business is vulnerable to potential risks.  It is so important to have a backup or disaster recovery plan in place and to protect yourself and your business from potential risks.  Take some time to think about worst case scenarios and how you’d handle them. What if a fire or flood destroyed your office? What would happen if a customer or employee sued your business?  What would happen if you were ill or injured and couldn’t work?  Make sure you have insurance protection in place and put procedures in place to ensure your business could continue to run in the worst case scenario.


Start with the end in mind.

Start with the end in mind.  Many start up business owners think it crazy to be thinking about selling their business before it is fully up and running, but by planning what will ultimately happen with the business in the future, will help you plan and set goals to achieve along the way.  Without an end plan in place, a business can drift along and go off track and not be as successful as it could be with a clear exit plan in place.  Remember, one day you will either want to hand over the reins or sell on and have a nice lump sum in place for your retirement.


Seek professional advice.

If you’re serious about starting your own business and making it a success, find yourself a mentor or advisor to give you expert advice.  An experienced business advisor can be there to help you develop your business plan and launch your new career. They can be an invaluable sounding board and their experience and independent perspective can help you steer clear of the numerous start up mistakes so many make.


So if you are thinking of starting a business follow the steps above to help you make it a success.

Don’t be afraid to ask a stupid question

Don’t be afraid to ask a stupid question

Why there really is no such thing as a stupid question

How many times have you been in a meeting or at a conference or workshop and come away not really understanding all that was said but you were too afraid to ask what might have been considered a stupid question?  Did you scuttle off home and quickly do a search online to find out what was being talked about?  Do you wish you had known this in the room as it would have helped you understand the rest of what was being said?

Many people try to save face by pretending to know what others are talking about but this leaves them with a fear of inadequacy.  They become afraid to fully engage in the conversation as they are not wholly sure what is being discussed.

Don’t be afraid to ask a stupid question

I was once the only female manager in a room of 17 men.  The subject that was being discussed had a lot of jargon that I was not familiar with.  This was a common occurrence and I would always leave the meetings feeling I was stupid and then be nervous of going to the next one for fear of being asked something I didn’t know.

One day, I decided to brave it and ask what the Chairman was talking about.  I was shaking and terrified everyone would think I was the ‘dumb blonde’ asking a stupid question.  What actually happened was that after I asked the question, a number of other managers thanked me for asking as they had no idea what was being said either.  The chairman praised me for making the effort to fully understand the subject matter and I instantly went up in everyone’s estimation.

So in future, ask stupid questions.  Ask the questions that everyone else is afraid to ask.  You will become more confident in yourself and be admired and recognized as a confident person.

And if you have what you consider a stupid question to ask me, post it in the comments box below.

Create a vision board

Create a vision board

Create a vision board

I decided to create a vision board and here it is below.  This one is for my personal ambitions and I am just in the process of creating a new one for my business aims. Oh yes, I am aiming high but I love the quote by W. Clement Stone

“Always aim for the Moon, even if you miss, you’ll land among the stars.”

A simple vision board

Why would you want to create a vision board?

Do you want to create a vision board?  Or have you already made one?  And why would you want to make one?

A vision board contains pictures of things that you love and aspire to have or be. Let your mind go and find things that you really would love to have in your life or achieve. Don’t hold back. Be as ambitious as you can.

When you start putting your vision board together, as Oprah Winfrey states

“you unleash one of the most powerful forces on our planet: human imagination.”

Our imagination is incredibly powerful. It is amazing the power behind having a strong vision in our mind and that vision turning into reality. Your subconscious mind can start to make small changes in your physical being that lead you towards your goals.

Think of athletes who consistently visualise themselves winning a race or gaining a personal best in their race times. You would be amazed how many times it works. And if it doesn’t, what have you lost? Absolutely nothing! You have a very beautiful picture in front of you that reminds you what you are getting up for every day and the reason you are working when you don’t feel like it as you have something you are aiming for.

Go create yourself a simple vision board, whether for personal or business aims.  Keep that dream alive ….