It’s coming up to that time of year again… no, not Christmas, but the other time of year that all self-employed people start freaking out about… tax return time!
OK, not everyone freaks out as some of us do our tax returns as soon as we can, like in April as soon as the new tax year starts!
I’ve always wondered why people put it off until the very last minute...? I love to get mine out of the way as soon as possible. If you are prepared then you can do this too and stop all the panicking in January!
The only thing I do freak out about is remembering to pay my bill. I have several alarms at the ready near the end of January. I always have the money saved ready to pay it and simply need to log in to my HMRC self-assessment online account to make my payment.
The first year I paid self-employment tax I did actually pay it right away, as soon as I completed my tax return. But the payment just sat there in my tax account doing nothing. They don't actually clear the tax balance due until it reaches the tax payment deadline. So since then I thought it better to earn interest on my tax savings until the actual due date!
Tax for bloggers and self-employed doesn't need to be scary
Many bloggers find the whole tax thing really scary and intimidating.
I’m here to tell you it’s not at all. Or at least it doesn't need to be!
I am by no means an expert, but I want to share with you a few tips and some handy links to get you started. I should probably mention at this stage I do love spreadsheets and form filling doesn’t faze me, so maybe that’s why I probably find it OK.
I understand that not everyone is like this though, but hopefully you won’t find it scary and if you do then seek professional advice. If, like me, you're in the UK there are many tax experts online who are willing to offer advice or accounting services. You'll also find lots of local accountants. You could also ask fellow blogger friends or business owners for their recommendations for an accountant. However, the HMRC website has loads of helpful self-assessment advice to guide you through it yourself.
In the United States it is pretty easy to find a good CPA (Certified Public Accountant). If you're in Los Angeles, NYC, Chicago, or anywhere else in the United States, you can now speak to a tax expert online via TurboTax Live without ever needing to leave your home.
Handy tax tips for self employed + bloggers
Things to note – I am not an expert, so please do your own research. I’ll share some helpful links here that I've found or used.
Also, tax rules change all the time and I first posted this in November 2018 and updated it in September 2020, so do check the links and investigate for yourself as allowances and rules can change for each new tax year.
For reference, I am based in the UK.
1. Keep records of everything
Firstly, if you are planning on running your blog as a business then you need to keep records of everything. Even if you are only going to make £10 from your blog this year, that’s a profit and an income and it makes your blog a business.
You might not have to register for self-assessment with such a small income from your blog (see next point), but you still need to keep records. There’s a chance your blog will make enough over the next few months to have to register as self-employed, so it’s best to keep on top of record keeping.
Keep all invoices, receipts, bank statements and email correspondence with customers.
I have a spreadsheet with all my incomings and outgoings which I update every day, as and when I have an incoming or expense.
I then cross reference this with my bank account and PayPal every week and ensure the overall balances match up.
I have a separate spreadsheet for each tax year.
I rarely have paper receipts, but when I do I keep these in an envelope for each tax year.
Many of my invoices and receipts are electronic so I keep them in my email account all sorted into ‘incomings’ and ‘outgoings’ for each tax year. I can easily print everything and find records of everything for each tax year.
You really need to come up with an organised system to keep records of everything that suits you. Stay on top of it so it doesn’t overwhelm you.
If you stay on top of your accounting then you'll be self-assessment ready as soon as the new tax year begins. Filing your tax return will be a breeze.
The HMRC website says “examples of the records you may need to keep are:
- copies of your invoices, paper or electronic
- a spreadsheet of your income receipts
- emails confirming income received
- statements from the company who paid you which show the amount you received
- bank statements
- bank deposit pay-in records
- a diary or appointments book showing your income from each customer
HMRC can charge you a penalty if the records you keep aren’t accurate, complete and readable or if you don’t retain them for the required period of time.”
2. Go digital
I must admit, I love spreadsheets!
I love adding formulas that work out all my tax payments, National Insurance contributions and student loan repayments. The formulas automatically update my owed balances as I add new figures every day.
Some people loathe spreadsheets though or they simply don’t get them and get into a muddle.
Just because I use a spreadsheet, it doesn’t mean you have to, but you have to find some way of recording every incoming and outgoing.
If you’re making enough money or as your blogging business grows then you may wish to consider hiring an accountant to manage your tax returns, or using some digital software to make everything easier.
I’ve heard many bloggers talk about using Quickbooks before to make accounting and invoicing simplified and of course, digital. There are lots of different accounting software and apps on the market to make your business life easier.
Digital tax accounting company Tax Kings offer digital bookkeeping services for sole traders including ‘preparing, recording and completing your annual return’.
3. If your gross income is £1000 or less, you don’t have to register with HMRC
If your gross trading income from one or more self-employment trades is £1000 or less then you don’t have to tell HMRC or register as self-employed.
'Gross' means your total income before any expenses.
It’s known as a trading allowance.
If you don’t make much money from blogging (under £1000) and you have no other trades then it can save the hassle of doing a self-assessment.
However, there are still some reasons why you may wish to complete a self-assessment, even if you earn under £1000 trading allowance from blogging and any other trades.
These reasons include if you’ll want to claim Maternity Allowance based on your self-employed income, if you want to claim Tax Free Childcare based on your self-employed income and if you want to voluntarily pay Class 2 National Insurance contributions to help towards some benefits.
You can find out more information here: https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
4. Register for self-assessment if your business income is over £1000
In 2020, if your gross income from blogging and any other trades is over £1000 then you’ll have to register for self-assessment with HMRC. This is before any expenses are applied, so your total turnover, not profit.
"Gross income means the total amount you would put on your tax return before any allowances or expenses are taken off."
You can register for self-assessment here: https://www.gov.uk/log-in-file-self-assessment-tax-return
This blog post is from 2020, so do check if these thresholds have changed.
5. Use ‘simplified expenses’ to claim for utilities
There are lots of costs you can claim as allowable home expenses as a business/sole trader.
For example, if you work from home then a proportion of your energy bills will be from the hours you are working. You can add this as a business expense.
Rather than trying to break down exactly how much light, power and heat you used during working hours to claim as a business expense, you can use the ‘simplified expenses’ flat rate instead.
Simplified expenses can save a lot of time as they outline exactly how much you can claim towards utilities each month:
Hours of business use per month
Flat rate per month
25 to 50
51 to 100
101 and more
Click this link to find out more: https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
This blog post is from 2020, so do check if these thresholds have changed.
I work around 40-60 hours per week on my at-home business so I can add £26 per month as a business expense towards our utility bills.
Note that simplified expenses don’t include telephone or internet bills, so these need to be worked out and claimed as a separate expense.
This is where hiring a professional accountant can have its benefits. They will know all the rules around what you can and can’t claim as a business expense. The simplified expenses method might not be right for you and a tax accountant may be able to save you more money by working out proper proportions of all your utility bills and other costs associated with your business when working from home.
6. Save as you go
This is probably one of the most important things to do!
Save your tax as you go!
As mentioned, on my spreadsheet I have formulas that are linked to my profits each tax year that work out my total costs for the following:
- Tax (20% of income over my £12500 personal allowance)
- Class 2 NIC (set amount £3.05 per week)
- Class 4 NIC (9% of profits between £9500 and £50000)
These sums are based on the thresholds and allowances for tax year 2020/2021. These usually change every tax year, so check the HMRC website for the latest thresholds.
For tax year 2020-2021 I will have paid off my student loan in full, however in the years before this I also saved for my student loan repayments too. Check online for the latest student loan repayment thresholds and percentages if you have a student loan to repay.
Anyway, by the end of the tax year I already know exactly how much I owe thanks to my spreadsheet!
I save throughout the year though by putting my monthly tax and National Insurance contributions for the month to one side – in a savings account – so I have the money ready to pay the tax bill at the end of the year.
There are handy online tax calculators for the self-employed so you can work out what you need to save, especially in your first year of running your own business. After your first year things should get a little easier. I normally then base my savings on the previous tax year with a little extra if I expect to earn more.
I know roughly what I’ll earn now as I’ve been full-time blogging for a while, but if you’ve no clue how much all your outgoings are then search Google for a ‘self-employed tax calculator UK’ where you can enter your monthly income and it will tell you how much tax and expenditure for student loans, etc, you’ll have to pay on that. Then you can put this amount to one side and do the same the next month.
This also might be a handy way of doing things if your income really fluctuates each month. If you save too much then just see it as savings or put it in a retirement fund or pension, which you'll also need to start saving for too! It's better to save too much rather than too little, or nothing at all! You want to be prepared and all saved up for your tax bill at the end of the year.
A note about payment on account
One thing that often catches bloggers and the self-employed out is ‘payment on account’.
If your tax bill is £1000+ then you may need to make two 'payments on account' every year.
These are advance tax payments towards your next self-assessment tax bill. They help to spread the cost of the next year’s tax.
“You have to make 2 payments on account every year unless:
- your last Self Assessment tax bill was less than £1,000
- you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings
Each payment is half your previous year’s tax bill. Payments are usually due by midnight on 31 January and 31 July.”
Many people don’t know about the payment on account system and get caught out. For example, if your tax bill is exactly £1000 for your first year of trading then you will qualify for payment on account, unless you meet the second condition above.
This means your first tax payment due on January 31st will not be £1000, but £1500.
You’ll owe last year’s tax (£1000) plus your first payment on account (£500), half of last year’s tax bill.
You’ll then owe the second payment on account by July 31st and it will also be £500.
If you didn’t already know about payment on account then you might only be expecting to pay £1000 and are pretty shocked when you receive a bill for £1500!
This is another reason why it’s a good idea to complete your tax return as early as you can and not leave it until the last minute. No nasty surprises!
Hopefully these 6 tips have been useful. I'm in the UK and some of this information is location specific, but if you're in the US then you can also find some useful information online; You can check here to learn more about tax planning and preparation.
By no means is this a definitive guide. There is so much more I could say, but this is a good starting point.
You’ll also need proof and amounts of any interest earned on savings for the year, dividends earned and other income such as from an employed job.
Basically, just keep records of all monetary income or make sure you have digital access to them as proof and for filling out your tax return when the time comes.
The HMRC website really is so helpful and full of so many guides to help you, or you can choose to seek professional advice or hire an accountant to make the whole process as easy as possible.
Helpful articles if you want to monetise your blog:
- 6 secrets to make more money from your blog
- Make money from your blog with Awin affiliate marketing
- 4 ways to find paid blog opportunities
Work from home blog posts:
- The 5 ways I made £30000 money from home in 2017/2018
- 5 tried and tested ways to make money as a UK stay at home mum
- How to deal with overwhelm as a work at home parent
- How to survive the half term when you work from home
- 5 tips to stay healthy if you work from home