Starting Out in Self Assessment

by Startacus Admin

Starting out in the UK & considering trading as a sole trader? Here's some current sole trader & self assessment info you'll need to know, care of Bradley Post, Managing Director of Rift Tax Refunds.
I'm setting up a business. Am I better off as a Sole Trader or a Limited Company?
The first steps are the most important when you're setting out in a new business. A big part of getting it right is picking your direction.
Setting up as a Sole Trader is a little easier and cheaper than running a Limited Company, for instance. Your accounts are pretty simple, you don't need a separate business account and you don't have to make a lot of personal information public.
However, if it all goes wrong you don't have the protections a Limited Company set-up offers. Limited Companies keep your own money safer, as they're separate “legal entities” from their owners. It's also often easier to raise finance. However, they're more expensive and less private than a Sole Trader set-up.
How do I register as self-employed?
You need to let the taxman know you're working for yourself as soon as you can.
If you leave it too late, you'll be looking at possible penalties from HMRC. The deadline is the 5th of October after the end of the tax year you need to file a tax return for.
You can register easily online at HMRC's website, or over the phone on 0300 200 3504.
What records do I need to keep?
The main thing you'll need to keep very close track of is the money you've got coming in and going out of your business.
Depending on your set-up, your business income might mean cash from sales or invoices for work you've done. Your expenses could be anything from essential purchases to travel costs – again, depending on the kind of work you do.
You can get fined for sloppy bookkeeping, so bulletproof records are essential. Keep hold of receipts, bank statements and anything else that charts the cash flowing in and out. Remember that you must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.
How do I handle my tax and National Insurance?
When you're self-employed, you'll use the Self Assessment system to pay your income tax each year. There are strict deadlines and some nasty penalties for being careless or late with your tax returns submissions or payments. Some key dates to watch out for include:
- 31st of January for filing your returns online, paying any tax you owe and making your first “payment on account”. HMRC charges these as advance payments toward your next tax bill.
- 31st of July for making your second payment on account.
Self employed people usually pay 2 types of National Insurance, known as Class 2 and Class 4 through their self assessment. The class you pay depends on the profit you’ve made and that threshold can change, so it’s always best to check the latest figures. If you are submitting your self assessment tax return yourself, using HMRC’s online system, it will calculate your National Insurance contributions for you.
I'm worried about budgeting for my Self Assessment payments
Maintaining your cash flow is the key to keeping your business alive. If you're worried about unpleasant tax bill surprises, you can use HMRC's “ready reckoner” tool to help you plan out your budget.
It’s a good idea to do your self assessment tax return as soon as the new tax year ticks over in April so you’ll know the amount due and have a full 9 months to save towards it.
If you find yourself getting in over your head there are organisations that can offer free advice. As always, though, the best advice is not to run into trouble in the first place. Often, that means professional help is your best option.
Information provided by Bradley Post, Managing Director of Rift Tax Refunds and applicable in the UK at time of publication - April 2018.
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Published on: 16th April 2018
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