If you are self-employed, or are planning to become self-employed in the near future, one inevitable thing you have to deal with is accounts. This means managing money, keeping records, submitting tax returns, and more.
Your accountant will help with a lot of this, but there are things you should be aware of. Our accounting tips for the self-employed is a good start.
- Book keeping – put a proper book keeping system in place to ensure you are organised and keeping accurate records.
- Separate your finances – make sure you separate your business finances from your personal finances. This usually means having separate bank accounts and credit cards. It makes things easier to manage plus it is easier to show the true position of your business if the revenue ever asks.
- Pay by card – pay as much by card or directly through your bank as possible as your bank and credit card statements can then act as a record of your purchases. The same applies to payments. If your business permits it, avoid dealing in cash as much as possible.
- Keep good records – following on from the last point, make sure you keep receipts for any purchases or business expenses. Also keep other important paperwork like bank and credit card statements.
- Record your income and expenses with care – not only will this make it easy to complete tax returns, it also means you have a better overview of the position of your business.
- Put in place payment policies that assist your cash flow – this could mean payment upfront or on delivery. If you do give credit, make the time period as short as possible. Also, follow up promptly when invoices are not paid on time.
- Get accounting software – at the very least, you should use a spreadsheet. The ideal situation, however, is to use accounting software – it will save you time and money in the long-run. Get an accountant – an accountant will keep you right with the tax authorities and will ensure you meet your tax obligations. A good accountant will also help you identify issues and take decisions to improve your business.
Self-Employed Tax Tips
- Employ your spouse – if your spouse doesn’t work but helps with the business you should employ him/her and give them salary. Doing this helps reduce your tax through maximising the potential of the 20 percent rate band and tax credits.
- Claim vehicle and travel expenses – if you were employed before you may have claimed mileage when you had to travel to a location other than your normal place of work. You can’t do this when you’re self-employed. You can, however, claim a portion of the cost of running a vehicle or other travel expenses (hotel stays, taxi journeys, etc). The proportion has to accurately reflect how you use the vehicle. For example, if you use the vehicle 50 percent for work and 50 percent for business, you can claim 50 percent of the expenses. This includes fuel, insurance, tax, tyres, repairs, etc. Make sure you keep receipts for everything.
- Claim household bills – you can also claim for a portion of household bills if you work from home. This applies even if you only spend a couple of hours a week working from home. The things you can claim for include electricity, gas, and broadband. As with vehicle expenses, however, the proportion claimed must be reasonable, i.e. if you use one room of your house as an office for business you will not be able to claim 50 percent of your household electricity bill.
- Contribute to a pension – investigate your options for contributing to a pension as this might reduce your tax bill also.
If you are self-employed and need accounting or tax help, please contact a member of the Gilroy Gannon team today.