Completing your self employed tax return can be a bit of a pain at times.<\/p>\n
Here\u2019s some quick tips to make the whole process a little easier.<\/p>\n
If your income from your business is \u00a31,000 or less, under the Trading Allowance<\/a> rules, you do not need to inform HMRC that you\u2019re self employed.<\/p>\n For businesses which incur little in the way of operating costs the Trading Allowance<\/a> rules mean that you can claim a \u00a31,000 flat rate amount against your income rather than record all of your costs. Conditions do apply; so it\u2019s worth reading all the rules<\/a> if you want to use this allowance.<\/p>\n If you use a vehicle for your business then by far the easiest method for claiming your motor expenses will be to use the allowable mileage rates for relevant business trips.<\/p>\n These are:<\/p>\n 45p per mile<\/em> for the first 10,000 in the tax year<\/p>\n Then<\/p>\n 25p per mile<\/em> thereafter<\/p>\n If you use a motorbike<\/em> instead of a car you can claim 24p per mile<\/em>.<\/p>\n For a business trips by bicycle<\/em> you can claim 20p per mile<\/em> \u2013 a really useful rate of you\u2019re going green or healthy.<\/p>\n If you work at home using part of the property for your business you can claim for the costs of doing so as a \u201cuse of home as office\u201d charge in your accounts.<\/p>\n This can be done either through a use of home as office calculation which must be supported by actual figures should HMRC query your workings.<\/p>\n Alternatively you can use a simplified method being:<\/p>\n Limited Company<\/em><\/p>\n \u00a34 per week if you are an employee or director of a limited company<\/p>\n Sole Trader or Partnership<\/em><\/p>\n If you qualify for the use of the simplified expenses rules<\/a> (which apply to sole traders or partnerships but not limited companies) then you can claim the use of home as office amount at the following rates:<\/p>\n \u00a310<\/p>\n<\/td>\n<\/tr>\n \u00a318<\/p>\n<\/td>\n<\/tr>\n \u00a326<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n Do not muddle up the allowable amounts for a limited company with those that can be claimed by the self employed!<\/p>\n It\u2019s essential to budget for tax as you go so that there are no huge surprises at the end of the year. The key is to remember that not all income belongs to you. Assuming that you\u2019ve made a profit you will pay tax, and potentially additional National Insurance (see below). Income tax kicks in once you\u2019ve exceeded the annual personal allowance (for the tax year 2019 \/ 2020 this is \u00a312,500).<\/p>\n After that you\u2019ll pay tax at 20% up to the higher rate band which kicks in at total income of \u00a350,000.<\/p>\n So a useful rule of thumb for income tax for the tax year 2019 \/ 2020 is:<\/p>\n Once you hit income of \u00a3100k your personal allowance starts to decrease by \u00a31 for every \u00a32 of income until you reach \u00a3125k when you lose your personal allowance altogether.<\/p>\n Remember that income tax applies to all income which includes profit from self employment, wages and salary, profit from renting out properties and so on.<\/p>\n It\u2019s not just Income Tax that you\u2019ll potentially pay on the profits from your self employment. You may also have to pay Class 4 National Insurance which is due on profits over \u00a38,632 for the tax year 2019 \/ 2020 at the following rates:<\/p>\n Class 4 contributions are calculated on the self assessment tax return and will also be shown in your tax calculation.<\/p>\n Your tax bill may be higher than you thought. This is often due to the addition to the bill of payments on account. This is an amount that you have to pay on account against the tax due in the current year. HMRC uses the payments on account system to collect at least some of the tax you owe in the current tax year. The payments that you make on account are based on earnings in the previous tax year. You can read more about payments on account \u2013 click here<\/a>.<\/p>\nTrading Allowance rules instead of recording costs<\/strong><\/span><\/h4>\n
Mileage Costs<\/strong><\/span><\/h4>\n
Use of home as office<\/strong><\/span><\/h4>\n
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\n Hours of business use per month working at home<\/strong><\/td>\n Amount to claim per month<\/strong><\/td>\n<\/tr>\n \n 25 to 50<\/td>\n \n \n 51 to 10<\/td>\n \n \n 101 and more<\/td>\n \n Budget for tax<\/strong><\/span><\/h4>\n
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Don\u2019t forget Class 4 National Insurance<\/strong><\/span><\/h4>\n
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Payments on Account Explained<\/strong><\/span><\/h4>\n
Use an App<\/strong><\/span><\/h4>\n