Setting up as self-employed? Don’t forget these key tax steps

 

1.. Get Tax Advice Regarding Trading Entity: 

 

One of the first steps when starting up in business involves choosing the most appropriate structure for your business. You might decide to operate as a sole trader, a limited company, or another legal entity. Each structure has its own tax implications, liabilities, and benefits. Consulting with a professional accountant can provide clarity on which option is best suited to your business goals. At Godfrey Mansell Accountants, we provide tailored tax advisory services, helping you understand the implications of different business structures and guiding you to make informed decisions. 

 

2.. Choose a Name for Your Business 

 

Your business name is often the first impression you make on clients and customers. Therefore, it is important to choose a name that resonates with your target audience. Ensure that the name is unique and hasn’t been registered by another entity. It is advisable to conduct a search through Companies House if you decide to operate as a limited company, as well as checking domain availability if you plan to create an online presence. Our expert team can assist you in ensuring that your chosen name complies with legal requirements, preparing you for a smooth launch. 

 

3.. Register as Self-Employed with HMRC 

 

Once you have made the decision to operate as a self-employed individual, you must register with HM Revenue and Customs (HMRC). This is a straightforward process that involves completing your registration online. Be mindful of the deadlines; you must register by 5 October if you need to complete a tax return for the previous tax year [5th April] to avoid potential penalties. At Godfrey Mansell Accountants, we can facilitate the registration process, ensuring that your details are correctly submitted to HMRC. 

 

4. Check Class 4 National Insurance Contributions 

 

As a self-employed individual, you are required to pay National Insurance Contributions (NICs). Specifically, you will need to consider Class 4 NICs, which is based on a percentage of your profits. It is crucial to assess your projected income to understand your NIC obligations clearly. Our experienced accountants can help calculate your anticipated contributions, ensuring compliance while maximising your financial efficiency. 

 

5. Do You Need to Register for VAT? 

 

Value Added Tax (VAT) registration is a key consideration for self-employed individuals whose taxable turnover exceeds a specific threshold, set at £90,000 [in a twelve month period], as of the current tax year. If you anticipate surpassing this limit, it is essential to register for VAT with HMRC. However, even if your turnover is below this threshold, you may choose to register voluntarily, which could be beneficial if you intend to reclaim VAT on purchases. Given the complexities surrounding VAT, consulting with our team at Godfrey Mansell Accountants can clarify your obligations and assist with the registration process if needed. 

 

6. Open a Business Bank Account 

 

Having a separate business bank account is a vital step in maintaining clear financial records. It helps in distinguishing between personal and business finances, which is crucial for accurate accounting and tax reporting. Many banks offer tailored business accounts that come with features beneficial for self-employed individuals. You will need your business bank account details to register for VAT. 

 

7. Keep Up to Date and Accurate Financial Records 

 

Maintaining accurate financial records is not only a legal requirement, but it also allows you to monitor the health of your business effectively. You should keep records of all income and expenses, including receipts and invoices. Good record-keeping simplifies the process of tax return completion and ensures compliance with HMRC regulations. We at Godfrey Mansell Accountants provide support with setting up effective financial management practices tailored to your business, ensuring you remain organised and prepared for the tax season. 

 

8. Choose Accounting Making Tax Digital (MTD) Software 

 

With the introduction of Making Tax Digital (MTD), HMRC encourages the use of digital tools for tax compliance. Choosing suitable accounting software that aligns with MTD requirements can streamline your reporting process and improve efficiency in managing your finances. Look for software that offers features such as invoice creation, expense tracking, and digital tax submissions. Our team can guide you in selecting and implementing the right MTD-compatible software for your business to ensure compliance and ease your filing obligations. 

 

9. Manage Cash Flow and Chase Late Payments 

 

Effective cash flow management is essential for the sustainability of any self-employed venture. Having a clear understanding of your cash inflows and outflows will help you plan better and avoid any financial pitfalls. To mitigate the impact of late payments, establish a straightforward invoicing system, include payment terms, and follow up promptly on overdue invoices. Should you face challenges, our team at Godfrey Mansell Accountants can provide strategies and tools to help manage cash flow and improve your payment collection processes. 

 

10. Track Key Tax Dates, Deadlines, and Tax Payments on Account 

 

Self-employed individuals must be aware of key tax dates and deadlines to avoid unnecessary penalties. This includes deadlines for submitting your Self Assessment tax return, paying your tax bill, and making payments on account. Keeping a calendar of these important dates is crucial, and failing to meet them can result in fines. At Godfrey Mansell Accountants, we offer services that include reminders for key deadlines, helping you stay compliant and avoid any late fees.