How to Do Your Own Accounts When Self-Employed - VW Taxation Ltd

How to Do Your Own Accounts When Self-Employed

Being self-employed comes with a lot of benefits. You can decide who you work for and when, what kind of business you specialise in and where you work. In short, there’s a lot more freedom.

In the UK alone, there are over 4 million people who undertake self-employed work either part-time or full-time each financial year. This has grown dramatically over the last decade or so, particularly with the rise of the gig economy.

If you have a skill that you can sell to potential clients and customers, you can set up on your own and work for yourself. There’s plenty of support and online services to help you do this.

One of the big differences between this and working for someone as an employee, of course, is that you have to do your own accounts. There’s no HR department behind the scenes doing everything for you.

Here we take a look at what this means in reality, how to register as self-employed and submit your tax assessment and how a team of accountants like VW Taxation may be able to help.

Doing your own accounts when self-employed

Many people have joined the ranks of the self-employed, including sole traders, owning their business and doing their own accounts. In some cases, this is a pretty simple process. There is a range of different online apps and tools that are designed to offer accounting support.

There are two reasons for keeping accounts if you are self-employed:

  • You need to have a clear idea of your profits and losses for when you complete your tax return.
  • Keeping detailed account books give you an idea of how your business is performing.

The first thing you need to do if you are going to work as a self-employed individual is to register with HMRC for self-assessment. This is easy to do online and takes just a few minutes. All you need is your name and address, age, NI number and a few details of your business.

Once complete, HMRC will send you a unique taxpayer reference which you will use to log in to the system when you need to send in your tax return.

You need to complete a tax return for every year that you work as a self-employed individual – whether you do this the whole year or part-time and whether you make any profit or not you need to make a submission.

The tax year runs from April 6th to April 5th. You must submit your return, and any payment for tax and NICs that has been calculated, by 31st January the following year.

To complete your return, you must fill in the self-assessment form. This is fairly straightforward for simple businesses and can be completed in about 30 minutes in many cases.

As someone self-employed, you will be expected to keep accurate records of your business activities. This should include keeping receipts and monitoring incomings and outgoings. You must invoice customers with who you do business and make a note of this.

In simple terms, your tax for each year is the amount you pay on your profits after all expenses are deducted.

What expenses you have will depend on your business. A new laptop bought during the financial year may be an acceptable expense for a freelance graphic designer and can be subtracted from their overall profits. If you run a street food outlet, your expenses will probably include buying food products, the cost of running cookers, any licences you need to pay for and additional equipment such as utensils, plates and cups.

HMRC does a range of different helpful workshops for self-employed people including those on bookkeeping and record keeping.

It’s important that you also use your accounting system to keep an eye on what amount of tax you are likely to pay. This ensures you have money spare when it does come to pay your bill. In normal employment, you would pay your tax every month through PAYE. As a self-employed person, you will need to do this yourself.

What does an accountant do for the self-employed?

It’s not mandatory to have an accountant if you are self-employed and many people opt to do their own accounts. If the business is straightforward and uncomplicated, then this can be relatively easy to do.

Initiatives such as making tax digital are coming into force across the UK and that will involve many businesses switching to online services.

A professional accountant can also make sure that you don’t pay too much to the government and keep more of your profits. They do this by, for example, highlighting things that you can claim when running your business, making sure that overheads such as heating costs, bills and purchases are calculated properly before you do your return.

A professional accountant can also save you time. This is a more popular reason for hiring an accountant than many people think. If you’ve been working hard all day to run your business and earn a crust, the last thing you probably want to do is then hit the home office and do some admin work for your business.

Accountants also help you take a fresh look at your business model. Many people start as sole traders and then decide they want to grow and expand, opting for limited company status. An accountant can help with this process but also assist with the more complicated financial considerations that this move will entail.

How much do accountants charge for the self-employed?

Compared to other professionals like lawyers, accountants tend to charge one-off fees for different services rather than an hourly rate. For businesses, this means they can budget better and be sure of getting value for money.

A lot will depend on your turnover and how big a business you have. Some accountants provide certain services for a set fee of around £30 per month which can include access to software solutions.

Charges for self-assessment UK

For something like a self-assessment, a professional accountant may charge anything between £200 and £400 depending on the type of business and turnover, including submitting the tax return to HMRC.

If you want to see how a professional accountant can assist your self-employed status, whether it’s keeping the books or filling out that self-assessment form, contact the team at VW Taxation today.

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Picture of Gary Ellis | Director | VW Taxation
Gary Ellis | Director | VW Taxation

VW Taxation are self employment tax specialists based in Portsmouth. We specialise in tax accounting for contractors, limited companies and the self-employed.

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