Tips for your first year of self employment

Tips for your first year of self employment

  1. Register as self employed with HMRC – needs to be completed within 3 months of first income received. You will need to National Insurance number, home address and business details.  You will need a Government Gateway account to submit your return online. here
  2. Book-keeping – Record all income/expenses you are legally obliged to keep adequate records – here. Can claim start-up expenses.  Keep a log!
  3. Timelines for accounting – here
  4. Make payments on time to avoid HMRC penalties.
  5. Note payment on account here

Payments on Account
From experience, this HMRC system can really sting in your first year/first year your self assessment bill exceeds £1000.  Payment on account (POA) is a tax payment paid twice a year by self-employed people to spread the cost of tax over the year.  The instalments are advance contributions towards your self assessment tax bill.

Calculated as 50% of your previous year’s tax bill and paid in two instalments.

BEWARE: If this is your first time paying POA you will be expected to pay 150% of your tax bill at once.

For example.
If your tax bill is £4000

  • you will be required to pay this by midnight 31 January. On top of this, you will have to pay your first instalment of £2000 by midnight on 31 January.
  • Followed by the second instalment of £2000 by 31 July
  • When you complete your next self assessment tax return you will have already paid £4000 towards it.
  • If you owe further tax the balancing payment will need to be made by 31 January
  • If you have overpaid you will be due a rebate

POA is not optional!