10 things for self-employed people to think about around the end of the tax year

It may feel like the middle of winter right now, but we’re rapidly approaching the end of the tax year. April 2020 was a long time ago, and an awful lot has happened since then! Now is the time to get your paperwork together, not the day before, or even the month after. If you can, get your accounts up to date or send them to your accountant.

There are things you can do now that will make a difference to the amount of tax you pay, and your actions will vary depending on whether you have made a loss or a profit in the last year. If you have made a loss this year, did you make a profit in the previous year (19/20)? It may be possible to carry this back for a CASH REFUND of tax. The sooner you get your information in, the sooner you get the money in your pocket.

The TAX year runs from 6th April to 5th April. Your Self-Employed accounting year may not necessarily be the same, but it often is.

Before 5th April/Your accounts year-end

1. Get your paperwork together and see if you are making a loss or a profit. Dig out all the receipts, check off the invoices, and chase/raise outstanding ones.
   a). If you are working on the Cash Basis and have outstanding creditors (people you owe), or employees, consider paying a bit early. If you can, maybe pay quarterly PAYE in advance.
   b). If you work on the Accruals Basis, think about when you are raising invoices in relation to the work done, and 5 April (or maybe 31st March depending on your accounting year end).

2. Look at any Self Employed Income Support Scheme grants, or business rates/Discretionary grants that you received as part of Covid support. These are TAXABLE income, and need to be included in your calculations.

3. Check out your National Insurance contribution. Are you correctly registered for both Self-Assessment and as Self-employed? Known as Class 2 and Class 4 NI contributions, these are governed by the amount of profit you make. https://www.gov.uk/check-national-insurance-record

4. Check out the tax brackets and see if you’re closing in on one, and can avoid going over. The numbers you need to know are: 0% tax up to £12,500, 20% tax up to £50,000, 40% tax up to £150,000.

5. If you are looking at a profit, have a think about how you can reduce that, and therefore reduce your tax liability. Is there anything you were thinking about purchasing? A new computer, or some marketing maybe… It might be a good idea to do that now, rather than later in April.

After 5th April

1. If you’re paying less than £1,000 in tax at the moment, look at your expected profits and decide whether the trend for your business is going up, and therefore whether you’re likely to be paying over £1,000 tax for the first time etc. You will have to put money aside for extra payments on account of the following year’s profits. You can find more about this here. https://www.gov.uk/understand-self-assessment-bill/payments-on-account

2. Consider if you need to be moving from cash basis to accruals basis. Or vice versa https://www.gov.uk/government/publications/how-to-calculate-your-taxable-profits-hs222-self-assessment-helpsheet has a how to. And make the change at the start of the tax year.

3. Consider whether you need to change your business model, whether to become a limited company if profits are rising. Being a Limited Company may give you greater tax efficiency, reduced liability, greater borrowing power, improved reputation and credibility among your clients, but with a slightly higher cost, and greater administrative burden. HMRC’s website tell you how, https://www.gov.uk/set-up-limited-company or speak to your accountant, who will also be able to advise you whether this is the right time for your business to make the switch.

4. Consider whether to start keeping records for Making Tax Digital for the coming year, whether you need to or not. From April 2022 ALL VAT Registered business’ will have to file under the new rules, and from April 2023 anyone with over £10,000 Property/Self-employed income (not profit) Get used to it early! Speak to your accountant.

5. Watch your expenses for the coming year.

   • Consider paying Voluntary Class 2 NI contributions, if you’re below the £6,475 threshold, as well as if you’re above it. This will impact your future pension, and makes good sense if you’ve taken a break from payments, or have been earning less for a while. It’s £3.05 per week, in addition to income tax.

   • Don’t forget about Class 4 NI payments, if you’re earning above £9,500. This is 9% in addition to income tax (above the threshold) then 2% above £50,000.

   • Watch your turnover if you’re close to the VAT threshold of £85,000 in 12 months, checking your invoices each month. This is a rolling 12 months, not per accounting year.

   • Tally up your mileage regularly, £0.45 per mile, up to £10,000 – and it doesn’t include commuting.

   • Tally up your hours using your home as your office, which can be between £10 and £26 per month, depending on the hours you work there. Find out how much you can claim next year here: https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home