So, is being self-employed easy? Let’s find out…
One of the main reasons many individuals want to be self-employed is that they don’t want to be dependent on a job. Some take the route of being self-employed to work whenever and wherever they want.
For some it is all about having “freedom”. But there are many others who who wouldn’t dare quit their job.
Are you wondering if being self-employed will always be easy?
In a simple answer, No. Definitely not. Being self-employed means being able to afford to live without having a regular income (a salary). It all falls down to whether you will earn or have enough money or not. You have to be motivated each and every day – because if you’re having a “day off” ( being lazy or not feeling well), you won’t be earning any money. And when you’re self employed, no one else is going to motivate you.
The first step is going to be a tough choice. You have to believe that the product or service that you are going to be providing will be better than others that are already available. You have to have self-belief that you can do it. You have to be committed to what you are doing. And, of course, you need to be dedicated.
What sacrifices need to be made?
You’re going to have to sacrifice your personal time. You have to accept the fact that you are going to be working for a few years like no one else would do. In the early days, this will not necessarily seem like work though, because you will be enjoying your new found energy and passion for being self-employed. Some self-employed individuals may work harder than they used to as an employee. Some people are happy and content working their 9-5 job but that isn’t for everyone. Many will sacrifice going for a night out, or family time, or treats to remain focused on delivering their product or service and maintaining their self-employed life. Put in the time and effort in the early days and you will be able to reap the rewards later.
This reminds me of an image of a guy standing by his Lamborghini saying to an employee, “If you work hard, put in the effort and increase the revenue for the business,… I can buy another one of these.”
So why take the plunge to become self employed?
Like the story of the business owner and the employee (above), some don’t want to work hard for others to reap the rewards. So they take the risk of setting up as self-employed to reap the benefits themselves.
Many self-employed individuals have not regretted their decision either. It’s been tough at times but they love being self-employed and working for no one else but for themselves.
It doesn’t mean that you’ll be driving flash sports cars and own all the luxuries available but if you work hard and put in the time and dedication to your own business, you can make a success of your business. There are also many advisers and consultants that you can discuss your plans with. It’s always sensible to speak with an accountant and we would be happy to discuss your plans, to see if we can be of assistance.
Don’t forget, if your dreams are big enough and you are strong willed, nothing will stop you from being successful.
So, is being self-employed easy? No, it is not – but it is very worthwhile.
FILLED IN YOUR SELF-EMPLOYED TAX RETURN CORRECTLY… OR NOT SURE?
A survey from accounting software provider Intuit QuickBooks asked 1,010 self-employed people across the UK what they would rather do instead of file their tax return.
Of the 11.6 million people who have to complete the self-assessment tax return:
- one in five people (2.4 million) said they would rather give a speech to 100 strangers
- one in five people (2.3 million) would rather spend a night in a haunted house
- one in five people (2.2 million) said they’d rather hold a tarantula for a minute
- one in seven people (1.7 million) would rather get trapped in a lift
- one in eight people (1.4 million) said they would rather jump out of a plane
Other findings from the research include:
- one in two people (5.3 million) worry they haven’t filled in their tax return correctly
- two in five people (4.5 million) feel stressed about doing their tax return
- one in four people (2.6 million) will complete their tax return in the final two weeks
- Women take twice as long as men (12.3 hrs vs. 6.7 hrs) to complete their tax return
It doesn’t have to be that scary. With QuickBooks Self-Employed, it’s possible to take pictures of receipts in the app. The software will then automatically categorise your expenses, and when it comes to January, allow you to prepare your self-assessment without the fuss. It’s a user friendly app and doesn’t have all the technical accounting options required by accountants – but it does integrate with our scaled up version with all the bells and whistles.
Other innovative features in the QuickBooks Self-Employed software include automatic mileage tracking within the app, and the ability to integrate with your bank account to automatically keep track of invoices and scheduled payments from clients and customers.
QuickBooks Self-Employed also includes QB Assistant, a conversational chatbot that combines data-driven insights and natural language processing to unearth valuable insights for people who work for themselves.
Shaun Shirazian, Head of Product, Europe at QuickBooks, said: “The self-employed have more than enough to worry about between keeping on top of their cash flow, drumming up new customers and balancing their work and private lives. Self-assessment shouldn’t be another stress to add to the list. Using software like QuickBooks Self-Employed, all your financial information is at your fingertips, ready to easily submit to HMRC.”
The research, conducted by Opinium from 5-15 January 2019, also revealed young people were twice as likely as older people to submit their returns at the last minute (6% of 18-34-year-olds submit in the final 48 hours vs. 3% of those aged 55+). One in 100 people (110,000) were already planning to file their return after the 31 January deadline.
Content from www.businessleader.co.uk
Common Tax mistakes that business owners make from juggling various tasks.
Common Tax mistakes and how to avoid being a victim or culprit of these common tax mistakes. As a business owner, you juggle many roles and when there are urgent business tasks to do, spending time with your accountants may not be your number one priority. However, if you’re not regularly talking to your accountant, then there’s a danger of making some of these common tax mistakes:
NOT KEEPING PROPER RECORDS
Bundles of receipts – collating, sorting and keeping them all is not a hugely exciting job is it..? However, for VAT registered business owners, not keeping them is a common mistake. You might as well hand your well earned funds straight to HMRC. The next time you are offered that VAT receipt for your purchase, consider this – will you pull out your wallet and chuck it away? I would hope not.
Now, with so many apps on the market, the task of keeping your tax records properly has become less… taxing (sorry). With these apps, you can easily take a quick photo of the receipts as you receive them and then collate them later. This amazing technology and your awesome accountant will handle it from there. We recommend AutoEntry.
HOME EXPENSES – CLAIMING TOO MUCH
What’s wrong with claiming household expenses related to your business? Nothing, there is nothing wrong with claiming these expenses. The problem lies with over claiming them, leaving you with potentially paying a lot more tax in capital gains tax when you come to sell your property. Why is this? As the value of your home increases and you lose generous tax relief on the part of your home that you turn into business.
THE BUSINESS STRUCTURE/EMPLOYMENT STATUS
Maybe, when you started your business, you were advised to go for a sole trader, partnership or a limited company. However, the rules change… and change. When did you last take time to review and compare the different tax structures available?
Similarly, an important and complex area is that of self-employment. Whilst you may safely get your own status right as a business owner, are you confident that your freelance workers and associates are correctly self-employed? Be aware that HMRC is cracking down on the ‘gig economy’ and are putting the accountability on business owners to make sure this aspect is correct.
WASTING TAX ALLOWANCES (£26,000)
It is said that tax allowances are like your muscles. Use them or lose them. But did you know that if you add up the income tax allowance, capital gains tax allowance, savings allowance and dividends allowance, you get a whopping £26,000 plus allowances in the year? Previously we have seen many of these tax allowances go to waste. So make sure are making the most of your “muscles”.
You may have been introduced to and taken steps in using crypto currencies like Bitcoin, Litecoin, Ethereum and Ripple. Make sure you make the most of the capital gains tax allowance.
Have you considered how to make use of the allowances of your spouse and children?
POOR EVIDENCE (OR LACK OF) TO BACK UP CLAIMS
The rules on expenses that can or cannot be claimed are not as clear and as straight forward as you may think. By not choosing to appoint a good accountant or tax adviser, many business owners make this costly yet avoidable error. For example: a business owner, who rented accommodation (short term) in order to avoid the higher expense of hotel bills whilst on a long business trip, was denied tax relief because the evidence that had been submitted was not sufficient to meet the so called “wholly and exclusively for the purpose of trade” test.
When claiming expenses for business, make sure that the primary purpose is for the business – and be able to provide all the relevant documents to support this.
MISSING OUT ON THESE TAX BREAKS
Did you know that there are more tax breaks available within the law that most entrepreneurs miss out on. Here are the most common ones:
- R&D – Research and development.
- Bad Debt Provision (make sure you have taken all the relevant steps to recover the money)
- Capital allowances on equipment used for the business including fixtures as part of the building that you have bought
- Lease premiums
- Warranty provisions
- SEIS and EIS tax reliefs
- Entrepreneurs relief
- £40,000 lettings relief (although this might be scrapped by HMRC)
And the reason why most of these available tax relief options get missed is that you actually have to make a claim to get them.
BANKING MONEY FOR TAX (OR NOT)
Many businesses suffer with cash flow and it can be a huge problem at times. But when it comes to VAT and PAYE, it’s not your money. It is due to the taxman. When it comes to Income Tax and Corporation Tax, waiting until December or January to discover that you have a huge tax bill with no funds put aside to settle it is an extremely common mistake business owners make.
Our simple advice is: To avoid this problem, look at your business model and plan for your taxes and liabilities. We recommend opening a separate bank account to deposit funds to cover your taxes that will be due.
30% MORE TAX WHEN SELLING YOUR BUSINESS?
You’ve decided to sell your business and put your feet up (time to retire). However, you’re dealing with a buyer who is well-informed with regards to tax. They propose paying more for the company’s assets but is not interested in the shares. Let’s say that you agree to the sale of the assets at the higher price. The problem is, you have potentially lost out on a 10% tax rate with a potential additional 30% tax (or more). Why is this? Hypothetically, the company sells the assets at the agreed higher price and it pays corporation tax at 19%. Conservatively speaking, you would pay 20% income tax on the cash extracted. 19% and 20% is obviously more than 30%.
BUSINESS PROPERTY RELIEF – TAKING ADVANTAGE?
Of course your business has value. However, a common mistake we see, is the lack of planning around how the business should be passed-on tax free. Subject to some conditions, the rules allow your hard earned work to be enjoyed tax free by your loved ones. ALERT: If you do not have a Will or if in your Will you’ve passed the business to your spouse, you’re wasting this generous tax relief.
BUYING YOUR COMPETITOR’S SHARES
Ooh the empire is building and you’ve decided to acquire your competitor. In order to wrap up the deal quickly, you buy the shares of the company instead of the assets. As in one of the previous points above, this is a common tax mistake because whilst buying the shares is a good move for the seller, you lose the tax relief associated with buying the assets. Essentially a reverse of the point about selling the business earlier.
Check you are not a victim or culprit of any of these mistakes. If you are at all unsure about these points, give us a call. Rather than being reactive and attempting to do some retrospective tax planning, make sure you have a tax plan in place alongside your business plan.
I’m a small business, do I need to register for Making Tax Digital (MTD)?
Let’s take a look at what Making Tax Digital means for you and your business as it might not be entirely clear. We’ve been receiving many questions from local businesses in Chessington about whether they need to register for Making Tax Digital.
So,what should I expect as a small business owner?
Well, first off, businesses to be affected by Making Tax Digital will be those businesses with a turnover above the VAT threshold, which is currently £85,000. They will need to keep digital records to keep their VAT compliant, and this will start from the FIRST VAT period starting on or after 1 April 2019.
An overwhelmed business owner will no longer be able to simply log in and key in their VAT figures in the HMRC. – alongside approximately 71% of small businesses. Instead, they must move to electronic uploads from their accounting software package to HMRC. This is, of course, as long as they meet the VAT threshold.
Making Tax Digital Software
The thing is, you need to be aware that HMRC will not be developing their own software for this function, so businesses will absolutely have to rely on software solutions that are already currently on the market. The likes of Xero, Quickbooks and Sage will handle this.
So, until this kicks in what can your business do in the meantime?
- Be aware of your VAT dates – or schedule an appointment with your accountant.
- Take a look at your existing accounting software – is it ready to handle Making Tax Digital with HMRC?
- Look over your current accounting processes (or speak with your accountant) – are you ready to process quarterly reporting?
- Avoid the associated penalties that will be automatically applied by ensuring that you meet the deadlines regardless of the situation.
These points are minor but also major at the same time. Making Tax Digital has been ramping up in momentum and there has been plenty of information regarding it – so you won’t be able to say that you didn’t know about it.
Initial costs of Making Tax Digital
Of course, many businesses will face additional one-off costs with Making Tax Digital. Buying new or upgrading hardware and software; time spent to set up the new software and to get familiar with it or reviewing your existing software, and possibly additional professional costs to facilitate the move to MTD. There’s also potential downtime on training staff and familiarisation with new or upgraded software and processes.
But this is a good thing right? Let’s look to the positives that businesses can take from embracing technological advances, especially over the last few years.
Cloud accounting – there are no hidden surprises. This is true for those who are tech savvy and snap happy chappies (this covers ladies too but chappies just rhymed better). Such as, making use of phone apps with optical character recognition (OCR) technology to take photos of their receipts, which feed directly into their accounting solution.
Now, businesses have access to real time information through seamless integration bank feeds that will help them keep a close eye on their weekly/monthly expenditure, for example.
Some of the Making Tax Digital challenges
Some examples of the challenges that some businesses face with Making Tax Digital. For instance, not everyone is automatically tech savvy just because they run a business. And they are not necessarily equipped to handle Making Tax Digital. For others, some people still make payments by cheque (amazing isn’t it?). Or they are in an industry that is not particularly technical like farming or agriculture. Maybe they live out in the sticks and their internet connection is not high speed. Therefore uploading and downloading documents to their cloud software can be slower and I’m sure very frustrating.
So, April 2019 is the deadline for Making Tax Digital for VAT registered businesses earning above the £85,000 VAT threshold.
The clock is ticking and before we know it April will be on our doorstep! We are making sure that our clients are ready and prepared. However, there may well be plenty of other local Chessington Businesses that are not on top of this yet and need assistance. And the next question is “how do you prepare for MTD (Making Tax Digital)?”. Do you need an accountant or a bookkeeper to do this or can we handle this on our own as a small business?
Well as a small business, there are already many accounting software pieces in place to help you with Making Tax Digital. But if accountancy is not your strong point, you will more than likely need assistance from an accountant – and that’s where we can help. We are already plugged in to many of the top notch accounting software like Xero, Quickbooks and Sage, to name a few.
Xero is considered to be one of the very best online Bookkeepers ranking as the “Gold Standard” among many small business owners for its ease of use and technical abilities. Plus it also has the benefit of third party access (allowing your accountant to also plug in to process your data).
Direct links to HMRC is very beneficial for VAT returns
We are still receiving enquiries from local businesses who are not entirely sure what Making Tax Digital is and how it impacts their business. Basically, Making Tax Digital means that you need to submit your return through use of digital software. Software suppliers have provided a cloud based facility for businesses to upload their documentation and supporting evidence with their return.
Here is a brief overview of the main popular software suppliers for Making Tax Digital:
A stalwart of the industry, Xero is preferred by SMEs due to its accessibility and user-friendly interface. The software can be delivered through internet browsers, with financial information secured by cloud-based back-up systems. Xero’s basic software is also capable of connecting directly to bank accounts. That makes receipts, current, and savings account reconciliations easier.
- Pros: For many small businesses, Xero represents the standard accounting function, and can be managed by accountants and employees.
- Cons: The platform is maximised over a computer rather than mobile devices.
QuickBooks also offers direct links to HMRC for VAT returns. QuickBooks can calculate and file VAT and can be used by sole traders and SMEs. The technology uses the cloud to deploy its application. For the self-employed, QuickBooks can easily generate invoices, track spending, and also complete Self-Assessments. Users can also incorporate existing Excel spreadsheets into the platform. For professionals who are on-the-go, the app poses a convenient solution for on-demand business profit-and-loss monitoring.
- Pros: Direct link to MTD VAT returns, MTD strategy assistance, flexible pricing, and focus on sole traders and small businesses are the key advantages of the software.
- Cons: For more sophisticated businesses, the system may not offer all the linkages for cross-entity accounting, or templates for regulatory reporting.
Small businesses may find Sage’s online bookkeeping software Sage Business Cloud Accounting useful for tracking expenses and monitoring sales. Direct bank feeds also enhance the functionality of the software – the cash position can be taken across a range of banking counterparts, making reconciliations easier.
- Pros: Comparable in sophistication with Xero, Sage offers direct links to MTD VAT returns, and feeds from current accounts. The application can be downloaded to phone, tablet or computer.
- Cons: The bookkeeping software is mainly used for invoice and accounting management. So, it may not be as suitable for those with large numbers of receipts to process.