As a freelancer or small business owner, you need to be ready for the start of a new tax year on April 6th. While it doesn’t quite hold the same excitement that surrounds the start of a real New Year, it’s worth making some financial resolutions to ensure the 2019/20 tax year is one of your best yet.
If you’re more of a watcher than a reader, we have a couple of short webinars that will give you some useful tips on how you make sure your next Self Assessment isn’t a royal pain.
I will claim all of my expenses
Having a clear understanding of what you can and can’t claim as expenses when you’re a freelancer or small business owner helps keep your business running and maintaining its cashflow.
By knowing your allowable business expenses, you can lower your reported profit. This will, in turn, reduce the amount of tax you pay and increase the amount of money that stays in your business. Claiming every single expense you’re entitled to – whether it’s office pens or a new computer – will leave you better off than just paying for them out of your own pocket.
You can claim a wide range of business expenses, including:
- Office equipment
- Work uniform (as long as it carries the company logo – clothing for personal use cannot be claimed, and general business attire cannot be claimed as a uniform expense.)
- Protective work clothing (e.g. eye goggles, if it’s a business necessity)
- Some forms of travel (e.g. journeys that are made for work purposes outside of your normal commute)
- Business mileage
If you’re unsure whether something counts as a business expense, check with your accountant or HMRC.
I will be more organised
Let’s be honest, no one really enjoys even thinking about tax, let alone completing Self Assessments and other tax returns. It can be a painful, drawn-out meander through a year’s worth of accounts, bookkeeping, and receipts.
However, with a little bit of organisation, thinking about the forthcoming tax year may not seem as daunting, and as business organiser and time management specialist Cory Cook wrote in the Guardian:
“When we’re organised, we think more clearly. We’re in tune with our targets and how to reach them. We have systems in place for carrying out our work – and regular planning ensures we keep priorities at the forefront.”
Maybe you’d find it easier to keep on top of things with great online cloud accounting software.
Make it a date
Keep forgetting when the Self Assessment deadline is (31st October for paper filing, 31st January for online filing)? Not sure when you need to file your P11D (6th July)? Reach for your tablet or smartphone and get those important financial dates in your diary.
Being fully aware of when these important tax deadlines occur will make the whole process seem more streamlined. In fact, if you run a limited company we’ve got a handy article with all of the deadlines and other director’s responsibilities you need to know about.
I will pay myself and my employees fairly
If you’ve been freelancing for the previous 12 months, it’s worth going over your books and taking a look at your rates. Were there any projects you worked on that you felt you sold yourself short on?
Making sure you’re getting paid appropriately for your work is imperative, not only to keep your business ticking over but also your self-worth and motivation in check. We have a useful day rate tool to see how rates in your area have changed over time.
If you’re running a company with employees, chances are you’re probably already aware of the government’s ‘National Living Wage’ – essentially a ‘premium’ on top of the existing National Minimum Wage (and not to be confused with the Real Living Wage).
The National Living Wage entitles all workers aged 25 or over, except those in the first year of an apprenticeship scheme, to at least £8.21 per hour (from April 2019) – a rise of 38p on the 2018 rate.
As an employer, you need to keep payroll documentation for three years to prove you’re paying either the National Minimum Wage or the National Living Wage to your employees, should there be an investigation by HMRC. Again, we’ve got an article that gives you all the information you need about taking on an employee.
Master your paperwork
Do you really need to keep that printout? Do you even need to print something out in the first place? Unless what you’re holding is a receipt or something to do with tax or payroll, chances are you can file it under ‘B’ for ‘bin’.
Keep paperwork stored safely and create backups if you can. Google Drive, One Drive from Microsoft, iCloud or Dropbox are all excellent for doing this. They let you photograph documents then store them for easy access and safe-keeping.
As with any new tax year, there are changes to rules, rates, and allowances.Fortunately, there aren’t too many this year (we’ve listed all the main personal and business changes in our handy article). But it’s still good to get a head start on the financial year and ensure your business puts its best foot forward.
I will get out more
When you’re running your own business, it’s all too easy to end up chained to your desk. Try to schedule in time away from your usual place of work.
Regularly attending networking events and industry meetups not only provides a welcome change of scenery, but also the opportunity to meet like-minded individuals, promote your business and, hopefully, pull in some new clients.
Our Crunch Chorus community for the self-employed organises meetups in Brighton and London. There are lots of other groups as well, but If you can’t find something local that interests you, why not set up your own group?
Get an accountant to take some of the strain!
Well, we would say this, wouldn’t we! Getting an accountant is a great way to keep on top of your finances. They’ll remind you of tax deadlines and payments due, show you ways of keeping your accounts in excellent shape, and advise you on allowable expenses and how to report them so you’re as tax efficient as possible.
They can help you with things like estimating how much tax and National Insurance you’ll need to pay every six months or quarterly for VAT. They’ll also help to ensure you’re not forgetting any payments on account, which catches many people out every year.
New Tax Year, New You – webinar for limited companies
Questions from the limited companies webinar
Q: How should I review my IR35 status as a limited company director and how would I notify HMRC?
A: You’d need a professional to assess your particular situation, but you can use our free IR35 calculator which will assess the risk of your contact being inside of IR35.
Q: Is there a limit of time beyond which expenses cannot be paid? And is it a legal requirement to have all receipts?
A: You need to have all your receipts to be able to claim. It’s best practice to claim the expenses when completing the company accounts each year. However, you can amend accounts and corporation tax returns.
For Corporation Tax returns there is a time limit of four years from the end of the Corporation Tax accounting period to which the claim is related.
Q: Do I have to store my receipts in the cupboard or can I just store them electronically ?
A: Storing receipts in a cupboard or electronically are both okay, but you must keep them for at least six years in case of an audit.
Q: Does it make sense to keep personal and Corporation Tax aside in Business Bank Savings Account?
A: Yes it’s a good idea to keep Personal and Corporation Tax aside in a Business Savings Account. When you take money out of a business account there are automatically tax consequences, so keeping money in your business can help reduce your tax exposure.
New Tax Year, New You – webinar for sole traders
Questions from the sole trader webinar
Q: I became a sole trader at the end of January this year. Obviously now we’re beginning a new tax year. Is there anything I need to submit to HMRC for the period between January and now?
A: No, there isn’t anything you need to submit for the period between January and now. You’ll need to have registered as a sole trader and for Self Assessment by 31st October 2019, however there’s no harm in doing this now. Don’t forget to put money aside for the tax and Payment on Account.
Q: How much should i put aside if I will pay the higher rate tax? More than 30%?
A: You pay tax on your profits – higher rate income tax rate is 40% and higher rate National Insurance is 2%, so you’ll need to save around 42%. It depends on whether or not you have other income. An accountant will be able to give you a bespoke calculation.
Q: Hi, what can I claim for working at home and how do I record this on the SA?
A: This is rather complex and depends on the size of the property, time spent working in property and actual expenses incurred. We’d advise speaking with an accountant who can advise on your personal situation.
Q: What is cash based accounting and how would it benefit me to use it for my financial records?
A: This is where you account for transactions when you actually incur the expense or receive the cash. This compares to the accrual basis where you account for the transaction based on when the work was completed. You can only use the cash basis if you’re a sole trader with an turnover of less than £150,000.