Tips for your first year of self employment
- 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
- Book-keeping – Record all income/expenses you are legally obliged to keep adequate records – here. Can claim start-up expenses. Keep a log!
- Timelines for accounting – here
- Make payments on time to avoid HMRC penalties.
- 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.
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!