What you should be doing financially if you’re self-employed

When you’re self-employed it can be a minefield trying to work your finances out. With so much advice, legislation and rules to follow it can be over-whelming. As a team that works with self-employed workers regularly we’ve gained lots of knowledge and have written an article on it for you. in simple terms, no technical jargon and genuinely useful tips that will help you get your finances in order for you and your business. Carry on reading to find out what we say!

Register with HMRC as self-employed

As a sole trader it’s your responsibility to pay your own income tax and national insurance. You can register at any time up until October 5th of your business’ second tax year

Make yourself aware of the expenses that you can claim for.

You’ve probably already completed your Self Assessment however to get more deductions on future tax bills its a good idea to be aware of what you’re entitled to so you can keep it under check all year round.

Be careful with credit cards.

When you’re self-employed it can be that little bit too easy to slip into the habit of using credit cards to get by. If you’re using a personal credit card for business purposes it can mean you’ll come across some pretty hefty fines. Look into getting a business credit card for these expenses. 

Ensure that your insurance is up to date.

A lot of businesses require insurance  to get up and running and stay compliant. Even employing staff on a casual basis means that you must, by law, have employers’ liability insurance. There are lots of forms of insurance that will help cover the cost of mistakes, accidents/injuries, theft of resources and damage to property/equipment.

Most small businesses will take out public liability insurance. This is particularly common for those with customers than visit them on site or who do work to other people’s properties. Public liability insurance protects your a third party injures themselves or damage is caused to property as a direct result of your business activities. 

Those businesses who provide a service or advice to clients should read up on professional indemnity insurance. This covers businesses when clients attempt to sue when they’re unhappy with work or advice given.

Keep track of your direct debits

It’s shocking how many people don’t cancel a direct debit when they no longer use the service it pays for. Take some time to sit down and track your direct debits. Cancel any that you shouldn’t be paying for.

Be aware of when you need to register for VAT

If your business’ annual turnover exceeds £85,000 then you’re legally required to register for VAT. Whatever stage of the business cycle you’re at and you think you’re going to hit the £85k threshold, you must register. The threshold will usually increase a couple of thousand pounds each year. You must inform HMRC within 30 days or you’ll be looking at paying a fine.

A lot of businesses register for VAT even when they don’t need to. For an independent business it will help build credibility and you can also claim VAT back on eligible purchases you make. You can read about when to register here.

Make sure you can cover regular bills

When you’ve worked out your outgoings, ensure that every month you’ll be able to cover these cots with what you’re bringing in. Going into your overdraft or incurring debts can be a huge weight on your shoulders and can soon wrack up to huge amounts that you’ll not be able to manage.

If you think you’ll have problems it’s a good idea to set up a second account for your regular outgoings. In the months that you earn more, top this account up to cover those months things are a little tight.

Budget for your lowest income

An irregular income can be problematic when you’re budgeting. It can be tempting to think of every month as a good month when you’re self employed… Wishful thinking! However, this can leave you seriously short when the income isn’t as large as you’d hoped it might be. By budgeting for your lowest possible monthly income, you’re ensuring that everything will be paid. On good months you can alter your budget and so on. 

Work to build an emergency fund 

There will be some months you earn more than expected and some that you pay out more less than you thought you would. Don’t be tempted to splurge that extra cash sitting in your account. Building up an emergency fund for, well… emergencies, will get you through some tough financial times and unexpected costs. 

A great way to ensure your emergency fund is going to do its’ job is to have at least 3 months worth off outgoings in there. While you’re building it up it’s still reassuring to know that you’ve got some of your major costs covered if anything was to happen.

You can read all about the financial mistakes to avoid when you’re self employed here

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