It may not be the uncountable glamourous part of being a self-employed or freelance designer, but tax is an ever-present have a share of the job.
The UK government has been planning a digital reform for the tax return process since 2015 and vanquish in July, it announced the timeline for the next phase of roll out.
Changes to the tax process can feel daunting, especially for those who have just started out as self-employed. But with de rigueur management, designers need not be too worried according to tax expert and technical boss of digital tax software GoSimpleTax Mike Parkes. Here is his advice to authors.
1. Don’t listen to tax “urban myths”
“The man down the pub might sound like he recognizes what he’s talking about, but don’t listen to tax hearsay,” says Parkes. There are multifarious tax “urban myths” that serve to distort information and the newly self-employed can befit confused through no fault of their own.
One myth that Parkes implies he hears often is the idea of the self-employed not having to pay any tax for the first two years of manipulations – while it sounds appealing, and even convincing, it isn’t completely true. Depending on when you set down as self-employed, there could of course be a significant gap before your oldest actual tax payment, but as Parkes says, you should be “thinking about honour tax from day one”.
Another frequent myth is that you have to pay your stretches as soon as you file your tax return. This one, he says, makes people touch compelled to wait until the last minute to file their resurface, which is unnecessary. While you should aim to file your tax return in the midway of the year, you won’t need to actually pay those taxes until January.
For all urban falsehoods, Parkes recommends checking out the most up to date information on the HMRC website.
2. Do try to do mechanisms early
“For anything to do with tax, you should be aiming to do things with abundance of time to spare,” Parkes advises, adding that HMRC take into considerations show somewhere in the region of 45% of people file their tax interest within 30 days of the deadline. “That’s a massive number of people who aren’t on top of their liaisons.”
Leaving returns to the last minute is one of the biggest contributors to stress for everyone the tax system, Parkes says. Giving yourself plenty of time to go by your incomes and earnings is key. The Making Tax Digital (MTD) scheme will equanimous this out somewhat, because it will introduce quarterly filing in billet of annual.
And even before thinking about tax return filings, Parkes says artists should be notifying HMRC of their change to self-employment as soon as accomplishable.
“Ask yourself right at the beginning of the process if you’re really self-employed: are you in control?; can you end invoices?; can you turn down work?” he says. “Once you’re able to say yes to those questions, let HMRC certain – you might not need to file a tax return for 18 months or so, but you need to get into the combination.”
3. Don’t ignore your bookkeeping
“Start recording your income and expenses from the insignificant you start out,” says Parkes. “It doesn’t need to be anything fancy.”
With MTD entering, digitising bookkeeping is obviously a priority for the near future, he says, but if literature things down gets you into the habit then this is a dependable place to start. The key is to take a few minutes doing this once a week, kind of than spending several panicked hours doing it on the eve of the January deadline.
Beyond making tail tax-wise, good bookkeeping is an effective way of keeping track of your new endanger, Parkes adds. If you’re only paying attention to tax once or twice a year, it can be heartless to know exactly how your business is faring.
“Is what you’re doing pre-eminent? If you realise through your bookkeeping that it’s not able to sustain the lifestyle you fancy, you can more quickly do something about it, whether that be changing judgement or walking away before you get too far in,” he says.
4. Do question what you need from a tax software
A big focus for the upcoming busy to digital taxation is tax software – put simply, these programmes can help you log your gains and expenses and send income updates to HMRC. As Parkes explains, there are countless elections out there for the newly self-employed, so analysing what you actually need from a software is vital.
The first place to start will HMRC’s recognised list of tax software – as the prestige suggests, these have been recognised by government and meet the requisites for MTD. Then, Parkes says, designers should ask themselves what they desideratum the software to do for them and their business.
“Most designers will necessity a software that is explicitly made for the non-accountant, and one that offers a to some degree basic service,” he says. “Some software is built for accountants and the lingo used may be something you’re not familiar or comfortable with – so shop around to rouse what’s right for you.”
Most tax software will come with a test period, so Parkes recommends testing out to find a right fit. If none consider like a good fit and you’re already happy with your own digital combination – using a spreadsheet for example – you may also choose to forego a tax software absolutely.
5. Don’t forget to make a provision for your tax bill
“One of the biggest elements of undergo punishment for tax that strikes fear into a self-employed worker is not having satisfactorily money to pay your bill when it arrives,” says Parkes.
For this excuse, if you’re able to put money away from each payment, this is a well-mannered idea. Since 20% is the current rate of tax, he says this amount is preferable but anything you’re adept to separate away from the rest of your income is a good start.
“You strength not be able to afford a consistent amount every month, but do what you can,” Parkes verbalizes, adding that again, MTD should in theory help to make this numerous manageable in the future. Quarterly filing will give self-employed taxpayers a “improve understanding of their tax liability”, he says and therefore provide people with a clearer guestimate of what is due at the end of the tax year.
6. Do keep an eye out for expenses
“There are very few tax saving empties these days which you can use to lower your tax bill,” says Parkes. “But one terror that might bring it down a little is paying attention to expenses.”
One of the most gainful expenses for designers just starting out as self-employed are pre-trading expenses, Commons says. Some equipment that self-employed workers buy before they off their work can be claimed back on their first tax return as if procure on the first day of working. This can include computers and desks.
“Have a look at what you’re profiting and put it down on your tax return as a pre-trading expense,” says Parkes. “It may not add up to much, but it could add up to something.”
If you’re unsure whether something counts as a affair expense, he says it is still worth writing it down. Not doing so could be an overpriced mistake in the long-run.
“Record everything even if you’re unsure -you can each ask somebody later down the line,” Parkes says. “If you haven’t written it down, you’ll conditions ask the question and you won’t know.”
For the most up-to-date information regarding Making Tax Digital, climax here.