When you go freelance – self employed – full time blogger – payer of taxes – you need to learn to manage your money in a completely different way to full time employment. Being self employed, whereby you are running your own business and invoicing for your services, requires you to be registered as a sole trader through HMRC. With this comes managing your own accounts, invoices and of course your own taxes and insurance.
So – since I struggled to know what to do when I went self employed last year, here’s my guide to managing your taxes as a self employed blogger/freelancer and tips on how to submit your self assessment quickly.
What is self assessment for the self employed?
Self assessment is where you declare that you are not employed full time or under PAYE by any business and that you’re managing and declaring your income to HRMC. You can submit your tax year as soon as the new one starts so from April to April and you have until January to submit your accounts. This will take all income, expenses, taxes, pensions, exclusions and options into account to produce a tax bill. Self assessment also takes National Insurance into consideration which is a requirement to pay when earning which covers things like healthcare etc.
Do I need an accountant as a freelancer?
You’ve probably heard many people say that ‘paying for an accountant, pays for itself.’ Until you have a business, you don’t see the need but I can categorically say, my accountant is worth every penny. I use Elsby and Co in Northampton who have always been on hand to answer any queries from the first day I set up my business to submitting my assessment. Yes you can do your own books without one, likewise you don’t need a bookkeeper but accountants know all the rules and loopholes and can make sure you’re only paying tax for the things you should and help you make the right deductions for your business expenses. For example, my accountant figured out how much of my phone bill was used for work purposes and included that in my expenses.
How to save your tax for the year ahead?
When I set up my business I created a cushion of £500 – this meant if I needed a buffer or some sort, be it without a payment that month or had a big bill to pay – I had it sorted. I know this can be hard for most but I believe you should always start a business with a kitty to help get you started. Even things like stationery cost money!
I set up a separate current account (you don’t need a business one unless you’re a LTD company) and started putting between 20-30% of any payment into this account. Whilst this was my kitty and built up gradually, there were of course times where I didn’t take a payment and kept all the money in my personal account. However, over the year I gradually built up a fund that once again if there was an emergency I was covered for a few months mortgage as well as the taxes. If I needed extra money to cover anything I work hard to maintain a good credit score which helps self employment so if the need for any loans such as Cashlady, I would’ve been accepted better too.
I built up a HUGE fund that in my mind would just about touch the taxes because when I was on PAYE – I was paying a good chunk each month on tax and NI. It turns out you don’t need to do this as much.
How much tax do you have to pay as a freelancer?
This is a very dependent question and whilst I won’t reveal my bill – it was extremely smaller than I expected. It was actually a bit of a joyous moment because once I included things like mileage, expenses, pensions etc – my bill was so small that the money I had saved up for the eventuality became my yearly bonus.
If I hadn’t of saved the big pot like I had, it could’ve been worse – every year will be different after all. My first year is naturally going to have more expenses because I’m starting up. The second year may be that I earn more (hopefully!)
You need to remember that your national insurance is a requirement too and can be a good chunk of money however you can calculate this well ahead.
Is self employment better for money?
Yes and no. In my first few months of freelancing I earned less my full time job per month but I also paid less tax so money in my pocket was actually greater. The joy of taxes hey! Whilst it is nice to be a bit more able to expense items and manage a business, it does come with pitfalls such as the joy of managing your accounts, recording every incoming and outgoing purchase and paying for an accountant too. All in all – it’s definitely been an exciting challenge and I love the end result!
Does this help you and your money queries?
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