Going self employed? Here’s what you need to know!
Many of us dream of being our own boss. We fantasise about early Friday finishes, holidaying when we like and even choosing to stay in bed for an extra hour or two on a Wednesday morning!

More realistically, one of the main benefits of becoming self-employed is the ease with which you can start up and run your new business. You can even become a sole trader whilst working as an employee for someone else, so you can test the water and see if you’re suited to working for yourself.

From a financial point of view there are a few things you need to make sure you have covered before your self-employed journey gets going.

Sole trader vs. limited company

First things first, you need to make sure trading as a sole trader is the right approach for you. A limited company does what it says on the tin - it limits the amount of liability, so if the company gets into financial difficulty then it is contained within the company and won’t put your personal assets at risk. However, there are more financial responsibilities being a Company Director, compared to a sole trader, so it’s always advised to work closely with an accountant.

That said, it’s just as important to have an accountant as a sole trader. Your accountant will make your life easier by dealing with HMRC for you. At Hargreaves Owen, we make sure you don’t pay a penny more in tax than you have to and when the business grows, we can advise on the best structure going forward.

Getting set up as a sole trader

Register as self employed with HMRC. You’ll need to start submitting an annual self- assessment tax return with your company figures.
Tip: We can help you complete your personal tax return in plenty of time of the 31st Jan deadline. This will tell you in advance how much tax you owe so you can budget for it.

Find out if you need to become VAT registered
Tip: If your VAT taxable turnover goes over the £85,000 threshold, or you know that it will, you’ll need to prepare and file VAT returns. We can help with this, just like the self-assessment returns.

Keep accurate accounts
Tip: Even if you are not VAT registered, it’s important to keep your books up to date with an easy to use online bookkeeping package. We can help ensure you make a claim for everything you are entitled to while staying on the right side of HMRC - from travel to meetings to some utility bills.

Open a business bank account
Tip: Even if you’re just testing the water and have one or two freelance clients while still employed elsewhere, having a separate bank account will keep everything much cleaner.

Make sure you are properly insured
Tip: You should typically consider professional indemnity insurance and public liability insurance, but there are plenty of other covers too. Get the right ones for you.

Be aware of any employer responsibilities
Tip: If you have any employees you will need to have a payroll scheme set up and submit Real Time Information (RTI) to HMRC. We can help with this and with Auto-Enrolment pension contributions. See our payroll blog for more information.

Don’t forget about your own pension - planning is key!

Other important things to consider

Be money-savvy: With no regular wage coming in, make sure you’re careful with your overheads. It can be tempting when you start to buy what you need all at once, but that society membership, software package and new laptop all take a huge chunk out of your first months’ earnings.

Go networking: One of the downsides of working for yourself is being by yourself! There are so many networking groups you can join, or drop into as a one-off, as well as a growing number of online support groups for that odd techy question, or just for a virtual chat with like-minded people. You could also consider a co-working space if you miss the office atmosphere.

Set up your office: It doesn’t have to be elaborate, but a dedicated space with a clear desk will do the world of good against the inevitable distractions of working from home. And it’s something to walk away from at the end of each day!

Get organised: A weekly planner is essential. Keep a ‘to do’ list and update it at the start and end of each week, prioritising tasks as you go.

You and HMRC

It can be daunting to go from being employed with your tax deducted at source, to being responsible for every penny going in and out of your work account. Most accountants, ourselves included, act as your agent so we deal directly with HMRC on your behalf.

If you are unfortunate enough to be the subject of a tax investigation we will be there for you. Plus all new clients are offered 12 months free cover with our Tax Compliance Insurance policy.

Good luck on your self-employed journey and remember we offer a full range of services for sole traders and partnerships - find out more here or get in touch for a chat.
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Keeping on top of payroll
Payroll is one of those parts of business that many dislike doing. You often hear people groaning that they’ve got to do their books, or submit this and that to HMRC. Of course, as Accountants we love all this, but we can see why it might be a real headache for some!

Whether you love it or loathe it, payroll processing is a necessary part of all businesses employing staff, or just a Director only business. And it certainly pays to keep on top of everything; your staff’s details and circumstances, plus updates and changes from HMRC and the government. In fact, there are two very important changes coming in to play in April, so keep reading to find out more.

What does payroll involve?

When deciding whether or not to outsource your payroll, it’s worth going over everything it includes to work out if you’d benefit from someone else managing it for you. It’s not just a case of making sure everyone’s wages land safely in their bank account on the right day. Although this will make sure everyone in the office keeps talking to you, there’s a lot more to it than that.

Wages: Ensuring wages are processed and paid on time. 
Payslips: Providing security payslips for each employee.
Compatible software: Using up-to-date payroll software. 
National Minimum and Living Wage: Keeping on top of updates and increases to make sure you never risk a fine.
HMRC submissions: Sending Real Time Information (RTI) and EPS submissions to HMRC each month.
Tax: Understanding all of the rules and regulations regarding taxation of employees and the rules which apply to Directors of a limited company.
Pensions: Making sure you’re Auto-Enrolment compliant.
Industry specific requirements: Filing the monthly CIS returns if you work in the construction industry.

How does outsourcing your payroll work?

If the above all sounds like a lot to keep on top of, outsourcing might be for you. We take responsibility for the weekly and monthly deduction processes, and also the annual returns. We basically become the payroll department of your business, small or large, one employee or five hundred. This releases you or staff that might have been allocated to these tasks to be more effective elsewhere, doing the things you want to do - and that you do best - in the business.

Important changes coming very soon!

Earlier we mentioned two important changes coming in in April. They are the National Living Wage increase and Auto Enrolment increase.

National Minimum Wage and National Living Wage increase

Most employees, with very limited exceptions, must be paid the National Minimum Wage (NMW) or the National Living Wage (NLW). Did you know the NMW was brought in by the Labour government in 1998? Before that it was up to the employer to decide what to pay, and trade unions would work hard to fight for good rates for their workers.

All the NMW rates will increase for the first pay period that begins on or after 1 April 2019, and it is important to get your pay calculations exactly right. Set to benefit 2.4 million workers, the NLW is increasing by nearly 5% - exceeding both inflation and average earnings. Last year it went up 33p and this year it will be 38p. Check out the new rates for all ages at: www.gov.uk/national-minimum-wage-rates

So are you certain your NMW calculations are correct? Be aware of the following:

● Hourly rates vary according to the age of the worker, so keep a sharp eye on the birthdays of your younger workers to ensure they are paid at the right rate for their age band.
● Don’t ignore some of the hours worked. All overtime hours, time spent training, or standing in line for security checks, must be counted. Workers who undertake sleep-in shifts must be paid the NMW for the whole shift.
● Tips and gratuities can never be counted towards the NMW paid.

What’s the penalty of not paying the correct rate?

If you underpay by £100 or more across your whole payroll, HMRC can include your details on a list of employers in default, which is published quarterly. The penalty for failing to pay the correct amount of NMW can be up to £20,000 per employee, so it’s so important to calculate it correctly!

Auto enrolment contributions increase

Alongside salary, it’s your responsibility to keep on top of pension contributions and make sure you are paying the right amount into your staff pensions. The minimum contributions you and your staff pay into your automatic enrolment workplace pension scheme will also increase from 6 April 2019.

The minimum contribution for the employer will be 3% and 5% for staff, making a total of 8%. That’s 3% more than the current rate. The government reviews the range of earnings that the contributions are based on each year. Last year it was for everyone earning between £6,032 and £46,350 a year. As the employer, you can choose to pay the minimum employer contribution or the total contribution.

If you’d like to speak to us about managing your payroll, please don’t hesitate to get in touch for a chat.
 
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Tax planning part 2 - Pensions
Last time we looked at how maximising the use of any ISAs we have before the end of the tax year on 5th April 2019 could help us to reduce the tax bill we’ll receive in January 2020. This time we’re looking at making the most of pension tax benefits... 

Making pension contributions 

How can paying into your pension reduce your tax bill? Basically, pension contributions reduce what is counted as your income, and therefore how much income is taxed. So pensions are a tax-efficient way to save. 

Wealth Managers Susie and Faye at the Hitchin branch of Raymond James Investment Services say: “Pension flexibility rules have made a big difference, and the tax relief on pension contributions can boost investments.

“The amount you can contribute is relative to how much you earn, and the Annual Allowance (still £40,000). However, everyone can contribute £3,600 (gross) to their pension even if they don’t have an income.”

Maximising pension tax benefits

Have you used up your annual allowance of £40,000 (up to £150,000 income)? If you haven’t hit the allowance in the last three tax years, you can pay more into your pension now and still benefit from it.

However, if you have already taken out some pension savings - and this is more than your tax-free cash allowance - then you can’t carry forward any allowances from the last three years. If you just take the cash allowance and not any of your pension income then the £40,000 allowance still stands. 

Pensions vs. ISAs for tax-free savings 

It doesn’t require as much income to save into a pension compared to an ISA. Susie and Faye say: “For a basic rate taxpayer, investing £1,000 into an ISA requires £1,200 salary before income tax (and of course national insurance). To put £1,000 into a pension costs just £800 as £200 tax relief is added. For a higher rate tax payer, the net contribution is effectively £600 as £200 is given as tax relief through your tax return.”

The world of tax and pensions can seem confusing, so if you have any questions don’t hesitate to contact us and we’ll be happy to help. 
 
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Timing is everything
The end of the accounting period for your business is a key point for tax planning. You can save or delay tax by moving income and expenditure between accounting periods.

For instance, advancing the acquisition of assets to just within your current accounting period will mean the capital allowances associated with those assets can be claimed earlier.

The cost of qualifying assets which fall within the Annual Investment Allowance (AIA) is given in full as a capital allowance in the year of purchase. The maximum amount that can be claimed under the AIA per year is increasing from £200,000 to £1 million, for expenditure incurred in the two years to 31 December 2020. For accounting periods straddling these dates there are complicated transitional rules.

From 29 October 2018 the cost of constructing, renovating or converting a commercial building to be used by your business qualifies for a 2% p.a. allowance. Costs connected with residential accommodation don’t qualify, neither do the costs of acquiring land or obtaining planning permission.

If your current year profits are looking very healthy, you may want to advance the payment of repairs, training costs, bonuses or pension contributions. An accrued salary payment, such as a bonus voted before the year-end, is deductible for the period if it is actually
paid within nine months after that year-end. However, a pension contribution must be paid within a company’s accounting period to be deductible for that period. 

ACTION POINT! Review spending plans and likely profit levels before your year-end.
 
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Get in touch - If you'd like to find out more about how we can help you and your business pay less tax, generate more profits and create long-term wealth for you and your family, please get in touch now