Being Self Employed

If you’ve not been self employed before here is what to do….

1. Register with HMRC as a sole trader

https://www.gov.uk/become-sole-trader/register-sole-trader

2. Open a separate bank account

It doesn’t need to be a business one, just another current account. All the money you receive for work goes in there. Out of there comes anything you spend which is related to work eg, travel to work, clothes for work, dog equipment, your laptop, phone, your rent if if you ever do any admin at home or have dogs their. Your internet bill. Food when you are at work (not your usual grocery shop. Any courses you do or booked you read to improve your work.

3. Download Expensify

This is an app. Every time you buy something related to work, take a photo of the receipt.

https://www.expensify.com/

Now you don’t need to do anything until around the beginning of January, each year!

4. Tax return

By 31st January each year you need to submit a tax return. You can get an accountant to do this if you like the easy life. Costs about £150 for the year or you can do it yourself.

In this return you/ they will put all the money that went into your account- your income.

Then you will deduct all the money that came out - your costs.

What is left is what you pay tax on- your profit.

  • However for some costs you will not claim the full amount as your costs, you make a sensible estimate. For example if you use your phone mostly for work but also for personal life, you might claim 75% of your phone costs. If you do an hour a day of admin at home, you might claim 1/24th of your rent.

5. Advantages

You only pay tax on your profit. This means that any cost you now have, like fuel costs, treat costs, van costs, essentially costs you 17.5% less. In fact sometimes it costs you 29% less.

You also get about £12,500 personal allowance you do not pay tax on. So you actually only pay tax on profit above £12,500.

The 17.5% Rule:

Okay you don’t need to know this all but….

The 17.5% tax saving idea comes from the fact that:

  1. You deduct expenses from your income before tax – meaning you don’t pay tax on that portion.

  2. For most self-employed people, the basic tax rate is 20% (for income between £12,570 - £50,270).

  3. You also save on Class 4 National Insurance, which is typically 9% on profits between £12,570 - £50,270 (reducing to 6% from April 2024).

How This Works in Practice:

  • If you spend £1,000 on a legitimate business expense, you reduce your taxable profit by £1,000.

  • If you were in the 20% tax band, that means you save £200 in income tax.

  • If you also pay 9% Class 4 NI, you save an extra £90.

  • Total savings: £290 (or 29%), not just 17.5%.

Why People Say 17.5%?

Some people average out the tax and NI savings across different income levels, which can roughly come out to 17.5%. However, your actual savings depend on:

  • Your tax bracket (higher earners save more).

  • Your National Insurance contributions.

  • Whether you’re VAT registered (if you reclaim VAT, savings increase).

I am happy to help but please note I am not an accountant so for more advice I am happy to get mine to give you some free advice or get your own accountant. Chat GPT is also a useful source.