Oh, the wonders of freelancing! The freedom to work when, where and how you like (pyjamas, anyone?) is enough to turn any city slicker off the daily office grind. But for all the upsides to being your own boss, it can mean you find yourself wading through stacks of admin.
The most basic of tax tips is to get yourself organised, and to do it as early in the new tax year as possible. Design a system for self-assessment tax returns that you use right from the start. That way you’ll avoid costly penalties for paying too little, too late, or, heaven forbid, too much.
And here’s another of our tax tips! If you’re keen to avoid the stresses you may have been through delivering your recent self-assessment form, why not find out how an online accountant might be able to help? Better that than setting yourself up for another heart attack next January.
Foolproof filing
Give your rubber gloves a rest this year and spring clean your filing system instead, separating business records from personal finances. Get into the habit of recording all invoices, income and expenses for your business, ideally in spreadsheet form, with categories that reflect those on the tax form.
This pays off big time when it comes to completing your Self Assessment Return, and working out Class 2 National Insurance (NI) contributions, Class 4 (Business) contributions, and income tax based on that information.
While this might sound like the ultimate bookkeeping snorefest, there are useful tools out there that can make this a lot less mind-numbing. People who sign up for My Accountant Friend get a lot of these things as part of the package, not least a snazzy app that reads your receipts and files all the info for you. Have a look at the video above… futuristic!
Know your rights
What you’re entitled to charge for as a freelancer might be more than you think, so take these steps to avoid under-claiming expenses. HMRC has a useful simplified expenses checker, with tips on how to claim for trickier items like home heating and lighting. However, the checker isn’t appropriate for limited companies, in which case it’s worth giving someone who knows a bit about these things a call.
Other legitimate expenses include stationery, post or phone bills, travel expenses, bank charges, insurance, advertising and marketing, as well as subcontractor fees and salaries. Remember to claim commissions payable if you subcontract or partner with other professionals on a project. You can also deduct any relevant subscriptions to online business tools or software – and no, Netflix doesn’t count.
Make sure you’re not accidentally offsetting goods or materials bought for private use, even if you’re convinced you work better in the company of McVitie’s.
Avoid overpayment
Be careful not to add anything that belongs on next year’s return. For example, invoices and expenses not paid by April 5 should be scrubbed off, even if you’ve received or sent the invoices already. This allows you to maximise use of your tax threshold year on year.
HMRC have created a handy way to keep the cash flowing swimmingly by splitting your tax payment for the year in two. It’s known as ‘payment on account’, and you don’t actually have much choice in the matter. Basically, you are required to pay 50% of your estimated tax bill in January and another 50% in July in advance of the actual return being submitted to HMRC. The figure is worked out by estimating what you’re likely to owe based on the previous tax year.
Keep an eye on the calendar
The taxman is a stickler for the rules, and deadlines for returns are no exceptions. HMRC knows tax returns better than you know… well, just about anything… and will be the first to spot any unusual activity. They also carry out random checks for accuracy, so keep things sweet by triple-checking it before submitting.
Savvy saving
If you make some extra bucks, it’s wise to put some aside for pension provision and tax efficient savings structures like ISAs (Individual Savings Accounts). It’s also smart to regularly set aside ‘buffer cash’ to pay tax at the year end and reconcile your accounts monthly.
If, even armed with these handy tax tips, tax-related stuff still makes you want to bury your head in the sand, then get in touch. Let somebody else tidy your tax return while you return to work.
