Today we’re going on an intrepid and exciting adventure to discover the super exciting world of UK TAXES for the self-employed. YAAAY! OK, I’m not fooling anybody am I? This junk is boring. But unless you fancy a long stay in the clink, or can afford an accountant, it is oh so necessary! This post is aimed at Bloggers and Freelancers who generate income as a self-employed person.
By the end of this post I will have covered:
- how to register as self-employed
- preparing for your tax return,
- information about allowable expenses
- and MORE (it’s exciting isn’t it?!)
**Disclaimer Alert** I have written this post as a general guide to help my fellow bloggers and freelancers, however I am not a qualified financial expert. Although I busted my chops to make this as accurate as possible, Rachael Hope Media accepts no liability for any loss or damage howsoever arising out of the use of this website or reliance on the content of the website.
SORRY! Had to get the formalities out of the way.
For my international buddies this may not be such a useful post. As I am UK based myself, I wouldn’t know how taxation for freelancers works elsewhere. I won’t be offended if you choose to skip this post. Why not check out my previous post instead by clicking the image below.
What is self-assessment?
If you have a regular 9-5 gig, your tax is automatically deducted from your wages, pensions and savings. However, if you’re self-employed (even if this is additional income) you need to fill out a tax return. This is known as self-assessment and it is the system HMRC uses to collect income tax.
Before we go on you have something called a “trading allowance.” This is the first £1,000 of income from self-employment. You don’t pay any tax on this amount which is useful to know.
How does the tax year work?
If you are anything like me, the tax year is damn confusing. This visual is how I got my head around it initially. I hope it helps. I am a visual person…words…not…working…tax year…hurts brain.
The tax return deadlines for this year apply to all income generated from 6th April 2017 – 5th April 2018.
- Paper tax returns – Midnight 31 October 2018
- Online tax returns – Midnight 31 January 2019
How to register for self-assessment
First, you need to register with HMRC as self-employed. You can do this here. By doing this you are registering for self-assessment and Class 2 National Insurance. If like me, you are self-employed alongside your main income (e.g. you are self-employed AND have an employer) your National Insurance payments will be covered by your PAYE wages. If you are purely self-employed, you are responsible for your own Class 2 National Insurance payments.
When you go to the registration portal, you will need to work your way through the questions, and then submit for processing. If you don’t want to register via the Government gateway portal you can fill out this form, print and then send back to HMRC. You will get given a 10-digit reference number for future use. So, make a note of it!
Preparing for your self-assessment return
First, you need to choose an accounting method… sounds kinda terrifying am I right? But it’s not so big and scary. For this post I am using cash basis accounting as an example. If you want to learn more about traditional accounting check out this link.
Cash basis accounting
If you have an income of £150,000 or less can use cash basis reporting. Basically, this means that you only record income or expenses when you receive a payment or pay a bill. This means you won’t need to pay Income Tax on money you haven’t yet received in your accounting period.
If you invoiced someone in someone on 25th March 17 but you didn’t receive the pennies until the 25th of April 17, this income is recorded against the 17/18 tax year.
General record keeping
You can choose whether you file your records digitally or through hard copies. If you are filing your records digitally, you need to make sure you have captured ALL the document information (front and back.) Also make sure it is in a readable format.
I personally store everything digitally. I just find this easier. I have a business accounts folder labelled with the relevant tax year. Within each tax year I have folders for expenses / incomings / outgoings, all of which are divided into the months of the year.
I collate all the information onto a spreadsheet at the end of each month. There are plenty of software packages out there that you can pay for to help with your accounts, such as Sage or Quickbooks. But for me I’m happy to save pennies and do it on my lonesome. It’s all about personal preference.
You need to keep your records for at least five years from 31 January following the tax year that the tax return relates to. E.g. you file your 2012-13 tax return by 31 January 2014 – you keep these records until 31 January 2018.
What records do you keep?
You need to keep records of the following:
- Record of all sales and other business receipts as they come in – keep records
- Keep supporting records, for example invoices/bank statements (anything that shows where the income came from)
- Record all purchases / other expenses as they arise – keep invoices unless the amount are very small
- Keep a record of all purchases and sales of assets used in your business
- Record all amounts taken out of the business bank account/ in cash for your own family’s personal use
- Record all amounts paid into the business from personal funds e.g. proceeds of a life assurance policy
Sales include:
- Goods taken from stock for your own or your family’s consumption that are not paid for in cash
- Goods or services supplied to someone else in exchange for good or services (barter transactions)
Proof
- all receipts for goods and stock
- bank statements, chequebook stubs
- sales invoices, till rolls and bank slips
For more information on record keeping, Gov.uk have a great resource.
Submitting your tax return
When you are ready to submit your tax return you can click this link and work your way through the required fields.
If you want to have a look at an example of what a tax return form looks like for reference check this link.
What are expenses?
Expenses = money that is spent to grow your business. You can deduct allowable expenses (business running costs) to work out your taxable profit.
DO– Claim items you’d normally use for less than 2 years as allowable expenses
DON’T – claim for any non-business use of premises, phones or other office resources. / do not include money taken from your business to pay for private purchases.
If you use something for both business and personal reasons, you can only claim allowable expenses for the business costs.
So, if you use your phone for business and personal reasons:
- Total annual bill = £500
- Personal calls = £330
- Business calls = £170
You can claim for £170 as business expenses.
Allowable expenses
I’ve gathered together some examples of allowable expenses relevant to bloggers and freelancers.
Office, property and equipment
- phone, mobile, fax and internet bills
- postage
- stationery (YAY)
- printing
- printer ink and cartridges
- computer software your business uses for less than 2 years
- computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)
Marketing, entertainment and subscriptions
DO claim:
- advertising in newspapers or directories
- bulk mail advertising (mailshots)
- free samples
- website costs
DON’T claim:
- entertaining clients, suppliers and customers
- event hospitality
Subscriptions
DO claim:
- trade or professional journals
- trade body or professional organisation membership if related to your business
DON’T claim:
- payments to political parties
- gym membership fees (bummer!)
- donations to charity – but you may be able to claim forsponsorship payments
You can get the full list of UK GOV allowable expenses here.
How to include expenses in your tax return
Once again you need to keep records of all your business expenses as proof. You don’t have to submit these alongside your claim, but you need to keep a record in case HMRC requests to see them. They are also important to refer to when you are calculating your expenses for your tax return. Examples of required records would be bank statements or receipts.
You can then add all of these up to get your total for the tax year. This is added to your self-assessment tax return.
If you want to make life easier on yourself when calculating for the following:
- business costs for vehicles
- working from home
- living in your business premises
You can use the simplified expenses checker found here. This provides a flat rate for the above. ALL other expenses must be calculated by working out the actual costs.
That’s all folks…
As always, I really hope this post has been helpful for those of you that are self employed in the UK and need to submit your self-assessment tax return. If you found my content helpful or you think I have missed anything, please let me know in the comments below!
Until next time!
Rach x
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