Freelancer, multihyphenate, consultant, contracter, supplier… Whatever you might call yourself, whether you’re releasing music as an independent artist, hiring out your services as an instrumentalist, licensing your photography to platforms, a a DJ getting paid or considering working for yourself, Maria Hanlon’s guide to self-employment aims to save you stress and answer the need-to-know’s around setting yourself up as a legitimate business…
“Right, I know this isn’t the most thrilling topic to discuss but it’s a really important one. If you’re self-employed or are considering it, I’ve created the guide I wish I had a few years ago, to save you the stress. You’re welcome.”
Maria Hanlon
Is Being Self-Employed Right For You?
The first thing to consider – is being self-employed right for you? It’s a big decision, especially if you’re going from the stability of being employed and knowing your monthly income to being self-employed where that might not be the case. Also remember you can be both employed and self-employed at the same time, for example, if you work for an employer during the day and run your own business in the evenings/on weekends. Hopefully this guide will help you decide if you haven’t already. Read more about this on the HMRC website here.
Just starting your side hustle?
Did you know… If you earn less than £1,000 a year gross income (that’s income before any expenses) from self-employment you do not need to tell HMRC or file a tax return. It applies to individuals only, not partnerships. So, if you have a small graphic design business and your income in 2022/23 is £900, this is covered by the trading allowance. You do not need to report this income to HMRC or pay tax on it.
Register As Self-Employed
If you earn over £1,000 and decide to become self-employed you’ll need to register on the HMRC website. This is a really important step as you’re telling HMRC that you’ll be paying tax through Self Assessment and Class 2 and 4 National Insurance (which we’ll come onto shortly) rather than PAYE (Pay As You Earn). See more on this on the HMRC website here.
Keep Track Of Your Expenses
As soon as you become self-employed make sure to keep track of your expenses. This could be by receipts, online purchases or invoices.
According to HMRC, costs you can claim as allowable expenses include:
- office costs, for example stationery or phone bills
- travel costs, for example fuel, parking, train or bus fares
- clothing expenses, for example uniforms or outfits for performances
- staff costs, for example salaries or subcontractor costs
- things you buy to sell on, for example stock or raw materials
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, business rates
- advertising or marketing, for example website costs
- training courses related to your business, for example refresher courses
The reason you need to keep track of your expenses is because you can deduct some of these costs to work out your taxable profit (as long as they’re allowable expenses).
For example, your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 – known as your taxable profit.
Work Out Your Annual Income
I would advise making a spreadsheet and inputting your monthly income so you can compare what you’ve earnt during different months and eventually add up your annual income for the tax year.
The next deadline to file your tax return is January 31st 2025 and you will be reporting on the period April 2023-April 2024.
A tax year is a period starting on the 6th April in one year and ending on the 5th April in the following year. For example, the 2023 to 2024 tax year starts on the 6th April 2023 and ends on the 5th April 2024. Once you’ve worked out your income for the tax year, you’ll be able to work out how much tax you’ll need to pay.
Note: If you earn less than £12,570, you will not have to pay tax, this is called your tax free personal allowance. More details here.
Get Organised With Your Invoices
Make sure your invoicing system is organised and up to date. I colour code my invoices in folders, red means sent but not paid and green is paid. Then I can be on top of how much I can expect to be paid and who I need to chase if they haven’t paid yet.
If you’re new to invoicing make sure to include the below on your invoice:
- your company name, address and contact information
- the company name and address of the customer you’re invoicing
- a clear description of what you’re charging for
- the date the goods or service were provided (supply date)
- the date of the invoice
- the amount(s) being charged
- VAT amount if applicable
- the total amount owed
- your payment terms (e.g. ‘Payment is due within 14 days of the invoice date’?). You should check with the company/ individual you’re working for if they have payment terms (UD’s policy, for instance, is 30 days from date of invoice to payment).
If you need a good system for creating invoice numbers, I recommend your initials, followed by the company initials and the number. If I was invoicing UD I might put; MH-UD-001. The following month my invoice number would be MH-UD-002.
You can create invoices on Word Document or websites like Canva or QuickBooks. Download templates from Google here.
Register For Your Self-Assessment
You must register for Self Assessment by 5 October 2024 if you have to send a tax return and you have not sent one before. You can register for self assessment here.
File Your Self Assessment Tax Return
Finally once you have completed the above, you will need to file and pay for your tax return.
The deadlines for paying your tax bill are usually:
- 31 January – for any tax you owe for the previous tax year (known as a balancing payment) and your first payment on account.
- 31 July for your second payment on account.
As well as tax, if you’re self-employed you’ll also need to pay Class 2 and Class 4 National Insurance, depending on your profits. Most people pay both through Self Assessment and HMRC will help you work out how much National Insurance to pay.
Once you’re ready you can file and pay your tax return here.
HMRC also offer really helpful videos and user guides to assist you in your self-employment journey.
Useful Links: HMRC videos & TaxScouts Instagram
Final Thoughts
I know this can all seem overwhelming at first but the sooner you get your head around this the less you’ll have to worry about. Get in a good habit of keeping track of your income, outgoings and expenses and remember to save money for your tax bill each month so it doesn’t come as a total shock on the 31st January – as a simple rule of thumb, you should look to put away a third of your income.
Good luck, you’ve got this!
Words: Maria Hanlon @mariahanlon Listen to The Voices Breakfast Show with Maria Hanlon on the 1st Friday of the month 9-11am on voicesradio.co.uk.
