When you’re self-employed, you’re responsible for paying tax and National Insurance on your income and filing your annual Self Assessment tax return – but it doesn’t have to be stressful. Before you get started, here are a few things you might need to know:

Registration- As soon as you become self-employed you should tell HMRC. The very latest you can register with is by 5 October after the end of the tax year during which you became self-employed.

For example, if you started your business in June 2018, you would need to register with HMRC by 5 October 2019. The tax year runs from 6 April one year to 5 April the next and if you register too late, you might be liable to pay penalties.

Record Keeping– It’s important to stay on top of your records in order to work out how much you need to pay. Keep your bank and credit card statements but if you pay for things related to your business with cash and don’t keep the receipt, you’ll be missing out.

Personal Allowance- If you’re self-employed you’re entitled to the same tax-free personal allowance as someone who is employed. For the 2018/19 tax year, the standard personal allowance is £11,850. For the 2019/20 tax year, the standard personal allowance will be £12,500.

However, if you have two jobs and one is self-employed, things are a little more complicated. You only get one personal allowance, which is usually applied to what HMRC see as your main employment. It is important you make sure your personal allowance is applied to the job paying you the most.

When completing your return, you’ll be asked for your Employer’s PAYE reference number so that any tax or National Insurance that you’ve already paid through PAYE will be included in the return. You can check this against your payslips and annual P60 plus any P45’s from jobs you’ve left in that tax year.

Calculating Your Tax – when you’re self-employed, you pay income tax on your profits, not your total income.

To work out your profits simply deduct your business expenses from your total income. This is the amount you will pay income tax on. The amount of income tax you pay on your profits is the same as if you were employed.

Allowable Expenses

Working from home?- You can claim a proportion of your home running costs as business expenses (e.g. one room out of eight is your home office or studio) or you can use these simplified expenses if you work for 25 hours or more a month from home:

Hours of business use per monthFlat rate per month
25 to 50£10
51 to 100£18
101 and more£26

Travel- if you also use your own transport, the first 10,000 business miles can be claimed at a rate of 45p per mile; 25p per mile thereafter and travel is currently 45p per mile for cars and vans. If you use a bicycle to get around, then you can claim 20p per mile. You should keep a log of both personal and business mileage. 

The different expenses you can include if you’re self-employed are:

  • cost of stock bought for resale
  • cost of equipment used at work
  • wages, salaries and other staff costs
  • payments to subcontractors (if you work in the construction industry)
  • vehicle and travel expenses
  • work building costs (including rent, power and insurance)
  • repairs and maintenance for work buildings and vehicles
  • office costs (including internet access, phones and stationery)
  • advertising and business entertainment costs
  • interest on loans
  • bank, credit card and other financial charges
  • accountancy, legal and other professional costs

You do not need to send in proof of your expenses, like receipts, when you submit your Self Assessment tax return but you will need to keep records of expenses after you submit your return for that tax year in case HMRC ask you to produce them.

Still need help?

More and more self-employed people are using the financial services provided by bookkeepers to ensure that their returns are completed accurately and on time.  

The Smarties Bookkeeping team is here to help you, please get in touch at info@smartiesbookkeeping.co.uk