How to be tax ready for 2020 when self employed
Tax season is now over and hopefully you got your return in by the 31st January deadline. You might not be ready to think about next year’s tax, but why not start planning in advance to make everything as smooth and stress free as possible?
One thing that most self-employed people really detest having to complete is their self-assessment for tax purposes. The 2017-2018 self-assessment deadline recently passed at the end of January and, as always, I saw lots of people expressing their frustration and worry over social media and in blogger networking groups. I’m here today to tell you that self-assessment as a self-employed person does not need to be scary.
In fact, with some preparation you can be tax ready for 2020 and complete your return in a breeze!
Read on to discover how to be tax ready next year.
Make it really easy and hire a professional
This isn’t something I’ve done yet, but it’s definitely something I am considering as my business grows. I know other self-employed people, both friends and family, who hire an accountant and therefore don’t have any of the worry of completing their tax returns as their accountants have permission to do it on their behalf. They have highly recommended it to me!
Many accountants charge the self-employed a fee based on your annual turnover and it can be surprisingly affordable. Even if you don’t need their assistance to complete your tax return then you might benefit from their tax advice services. Accountants such as Alexander & Co share the latest news and helpful blogs on their websites so you can keep up to date with the most important financial advice.
If accounting really isn’t your thing and you dread numbers and organising receipts, then hiring professional help could save you a lot of time, stress and hassle each year.
Keep all your receipts
Whether you are hiring an accountant or doing your finances yourself, you need to keep all your receipts. This includes paper receipts, online receipts and invoices. You need a paper trail to prove everything you have purchased. Keep these separated into the relevant tax years in case you ever need to reference them.
Document all your incomings and outgoings
I use a spreadsheet as I love working with Excel and create formulas to work out my profit, account balance, tax owed, national insurance owed and so on. There are many apps and tools that will do this for you, so find something you are comfortable using. Make sure you document all incomings and outgoings so you know exactly how much profit you are in. By the time I need to complete my tax return I can simply look at my spreadsheet and see all the figures I need.
Make accounting a normal part of your working week
My best advice is to stay on top of your accounts by making it a regular part of your working week, if not daily. I always add incomings and outgoings as they happen to my spreadsheet. This means my accounts are up to date every day. Once a week, or whenever I log in to my online banking, I will make sure that the balance matches my spreadsheet account balance. I highlight the row where I last checked it matched, so if it is ever out of sync I know how far back the problem may go.
Don’t wait until the deadline - file your return early
I always wonder why people file their tax returns at the deadline. I keep my accounts up to date and always file mine in April-May. For me the deadline to pay is the 31st January. That’s not the deadline to complete the tax return itself. If your accounts are up to date and in order then file it as soon as you can. There’s nothing worse than putting off a job you dislike for months on end. Get it done and relax for the rest of the year. It’s also great to do it early so as you know exactly what you owe and there are no surprises.
Save your contributions monthly
Make saving a certain percentage of your income each month to cover your taxes and other contributions a priority. To give you an idea of how much to save each month you can use this self-assessment ready reckoner calculator to input your monthly income and see how much tax/NI you need to save.
Be strict with your savings and keep them separate and untouched for the year. Once it’s time to ay your self-assessment bill then you’ll have the full amount saved and ready to transfer to HMRC.
Tax for the self-employed does not have to be scary at all. A few organisational hacks throughout the year will ensure you have the right amount saved, everything is documented and your accounts are in order. It’s the advice that everyone knows, yet still many scramble around at the last minute trying to piece together their accounts and file their returns with hours to go. Don’t be that person next year!
Please note – I am not an expert and you always should seek your own legal tax advice.
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