Tax planning for the self employed

 

If you have recently started working as a self employed person, one of the most intimidating things you have to deal with is paying your own tax. Whilst as an employed person this is all dealt with by your employer, and comes straight out of your pay without you having to do anything, as a self-employed person it is up to you to work out your tax, take off expenses and then pay it before the deadline each year.

 

Here’s how.

First, work out your employment status

Before you can work out how much tax and National Insurance you need to pay, you first need to work out what your employment status is. This is not always as simple as employed or self employed, as you could well be employed by one job, and self employed in another.

The easiest way for you to find out your status is to use the HMRC website, on which you will find a tool called the Employment Status Indicator. This will ask you a few basic questions about your employment, and then tell you what your employment status is based on this.

Register as self employed

If you do find that you are self employed, then you need to register as such so that HMRC knows that you need to file a self employment tax return. The very latest you can register as self employed is the 5 October after the end of the tax year in which you became self employed.

Tax years run from 6 April one year to 5 April the next. So, if you became self employed in May 2018, you will need to register as self employed by 5 October 2019, or face penalties.

Registering is easy, you can do so online at the HMRC website, or over the phone. Once you are registered then you will be able to start filing tax returns.

Work out your personal allowance

Everyone in the UK is entitled to a tax-free personal allowance, whether they are employed or self employed. This is the same amount for everyone and, for the 2019/20 tax year, works out to £12,500 for the standard personal allowance. So, you will not pay income tax on the first £12,500 that you earn.

If you work for more than one job and only one is self-employed, you need to take into account that your personal allowance counts for only one job, the one which HMRC sees as your main employment. This will usually be the job which pays you the most.

Income tax if you are self employed

As a self employed person you pay tax on your profits, not on your total income.

To work out your business profits you simply deduct your business expenses from your total income, and this is the amount that you need to pay tax on.

Tax bands are the same for self employed and employed people, meaning that:

  • You pay no tax on the first £12,500 (your personal allowance)
  • You pay 20% (basic rate) on income up to £50,000
  • You pay 40% (higher rate) on income of more than £50,000
  • You pay a 45% rate of tax for income over £150,000

National Insurance Contributions

Both employed and self employed people in the UK need to pay National Insurance Contributions (NICs), which go towards paying for certain state benefits.

If your profits are at least £6,365 (for the 2019/20 tax year, then you will be eligible to pay Class 2 NICs of £156 for the year (around £3 per week). If your profits are more than £8,623 then you will also pay Class 4 NICs, which is a 9% tax on profits between £8,623 and £50,000. For anything above £50,000 you will pay 2% more.

How to pay

Your Self Assessment tax return needs to be completed each year for the previous tax year. The deadlines for the 2018/19 tax year are:

  • 31 October 2019 for paper forms
  • 31 January 2020 for online returns

As part of the “Making Tax Digital” initiative, the government is phasing out paper returns, so it makes sense to make yourself aware of and comfortable with the digital system as early as possible.

On your tax return you will need to declare your entire income as well as any expenses. You will then be told how much tax and National Insurance you owe and must pay this by 31 January.

How can you save on tax?

 

Claim your expenses

Making sure that you have listed and claimed for all of the allowable expenses you can is key to bringing down your tax bill. A lot of people don’t realise all of the expenses that they are able to claim for as a self employed person, and are missing out on huge savings because of this.

Some of the things that you can claim for include:

  • Office equipment
  • Utility bills (such as electricity)
  • Legal costs
  • Business insurance
  • Travel payments
  • Uniform

Pension contributions

For those who are self employed and paying the higher rate of tax (40%), you can get tax relief by topping up your pension, as long as you declare all of these contributions on your tax return. You will be able to claim 20% back on contributions of up to £40,000 every year, and this can also be backdated for up to three years’ worth of contributions.

Incorporate your business

For those just starting out, there is often no real benefit to setting themselves up as a limited company, as it can be too complicated and stressful when you need to be focusing on bringing in new business. However, as your business grows it may well be worth looking into incorporating your business, as it can offer the opportunity to save on tax.

Directors of limited companies are able to withdraw some of their earnings as dividends, which are subject to lower tax rates (7.5% for basic rate taxpayers).  Expert advice is recommended if you are exploring this option, as the calculations can get very complicated, and any errors could cost you thousands.

Conclusion

If you are starting up your own business and going down the self employed route, then please accept our congratulations! We wish you and your business well and hope you achieve the success you dream of.

The last thing you want to get tied up in is paperwork and bothersome HMRC submissions, so if you want to just get on with your business and let us handle all the accounts and tax matters then please get in touch on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

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Benefits of taking on an apprentice

An apprenticeship is where you as a business owner will take on one or more trainees to work under you in paid training, combining studying at an educational institution with learning on the job to train them up to a more skilled level. If you are taking on an apprentice, the assumed goal is that you would want this person to eventually be able to succeed in a full time position in the company.

 

Apprentices can be new or current employees, and their wages are primarily determined by their age. The younger the apprentice the lower the minimum hourly amount of pay is. You will also be able to apply for funding from the government to cover some of the cost of training an apprentice.

 

To qualify as an apprentice, your trainee will have to:

  • Learn job-specific skills and knowledge
  • Train under experienced staff members
  • Study as well as work, during the typical working week (attending college, for example)

 

Apprenticeships are a popular option for businesses in England, with 814,800 people participating in an apprenticeship in 2017/18 alone.

 

Benefits of taking on an apprentice

 

Meeting social responsibilities

 

Although not a prerequisite for a successful business, many companies find that they gain better traction in their local community if they are seen to be giving back. Apprenticeships are a great way to do this for several reasons, including:

  • Offering jobs to young people in the community
  • Tackling unemployment in the local area
  • Demonstrating social responsibility
  • Offering a better career path to young people who otherwise might not get that opportunity.

 

Promoting productivity

 

Research has shown that companies who employ apprentices enjoy boosted productivity. The Centre for Economics and Business Research (CERB) found that each apprentice trained by a company brings, on average, a £10,000 gain in productivity for that employer.

Some research has also demonstrated that apprenticeships help to make a company more competitive in their industry, which is something else which helps to boost productivity and overall success. In a recent survey 8 out of 10 customers stated that they will choose a company which employs apprentices over others.

 

Promoting loyalty

 

Apprentices tend to be more loyal to companies, thanks to being invested in the company all the way from their earliest training, to moving their way up through the company. A loyal employee is worth a lot to a business, as it is someone that you can rely on to stick with you through bad times as well as good, and to do their utmost to ensure that their job is done properly.

Apprentices have also been found to stay in the businesses that trained them for far longer than other employees.

 

Bringing in new business

 

Whilst hiring an apprentice is good for business in that it offers you a dedicated and devoted employee pool to work with, it is also good for business in that it actually brings in new customers. Many employers who hire apprentices use this as part of their pitch when trying to attract new business, and the majority of these say that this is a major selling point for potential customers.

Research has found that a third of the employers surveyed said that they would be more likely to choose a supplier or partner if they offered apprenticeships.

 

Hiring your apprentice

 

If you have decided that your business is ready to start taking on apprentices, there are several steps to the process that you will want to get right, so that you optimise the chances of success for your prospective apprentice:

 

  1. Do your research and find out what apprenticeship frameworks and types of apprenticeships are available within your industry. Knowing the standard for an apprenticeship in your general area will help you to decide what you should go for.

 

  1. Choose an organisation who can provide the correct sort of training for the type of apprenticeship you have chosen.

 

  1. Find out about funding. There are various funding options available for businesses looking to take on apprentices and you may be entitled to one or more of them in order to lessen the financial burden on your company.

 

  1. Advertise for an apprentice. You may do this through the training organisation or institution.

 

  1. Choose your apprentice and work with them to put together an apprenticeship agreement statement and a commitment statement.

 

Tips for working with an apprentice

 

Create a welcoming environment

 

Let your existing staff know about the apprenticeship in advance, be prepared to listen to questions and concerns and be absolutely open and honest with your staff about what this means. It is important that your apprentice feels comfortable and welcomed in your business so that they want to stay.

Appoint your apprentice a mentor within the company who can be their first point of contact, answer their questions and help them to feel secure and comfortable. This is better off being someone closer to their level than a top ranking manager so that they can integrate more easily.

 

Give them adequate supervision

 

Make sure that your apprentice is supervised closely and have lots of meetings and reviews to ensure that they are on the right track. During these meetings you can set goals and objectives so that their path is very clear week by week, and they are able to set themselves achievable goals over time.

 

Teach them about your business

 

It is not enough for your apprentice to know what your business does, they need to understand why you do what you do, and what your long term goals are. An apprentice is someone you want to stick with the business in the long term, and provide a fresh insight into your business that helps you to grow. Add this information into their training and allow them some input when it comes to business decisions from an early point.

 

Set a good example

 

Make sure that you, any other staff members overseeing your apprentice, and the rest of your workforce stick closely to the rules that you’ve set out for them. It is critical that your apprentice sees a unified workforce who all work together to meet the business goals and objectives that you’ve explained to them, so that they can place real value in these over time.

 

Wrapping up

 

Our clients tell us that finding and keeping a good apprentice is not only a very rewarding experience for the company, it makes them feel they are playing a greater part in their local community by giving a young person a fresh chance to create a successful career. Here at Accounting Gem we love to hear these success stories, so if you have one then please let us know about it.

The process is a little involved to start with, but don’t let that put you off.  If you need any help with this or have any other issues or requirements, then please get in touch on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

 

 

 

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Benefits of advertising on social media

As accountants we regularly field questions from our clients on a vast range of topics. We are always gratified that they place their trust in us to advise them in a sensible and straight forward way about the myriad of topics faced by business today.

A common question is “how do we get more business?”. The internet is by far the biggest publishing platform on the planet, so we regularly recommend that companies utilise it to drive more sales. The most accessible way to do this is via social media.

Social media is one of the most beneficial marketing tools on the internet at the moment, offering business owners a way to reach and interact with their target audience in a way which feels organic and authentic. Social media also allows your fans and followers to do the work for you by commenting on and sharing your posts, meaning that it is an easy, cost effective way to build a following.

Recent studies have tipped social media as a major resource for advertisers, and social media has been found to be the most relevant advertising channel for 50% of Gen Z and 42% of millennials.

What are the benefits of advertising on social media?

 

It improves your search engine rankings

A study by Social Media Examiner found that more than 58% of marketers using social media for one year or longer saw a trend of improved search engine rankings even after a significant time period.

Social media offers you a place where you can post regularly to keep your page relevant, and where user likes and comments work towards your rankings alongside any original content that you post. You can keep your page interesting and encourage people to follow, like or share your content by posting information not only about your company and products or services, but also about your industry and employees. This has the effect of making your company feel more interesting and gives it personality as well.

Your pages can integrate your targeted keywords when posting blogs and articles, so that it ranks higher on search engines, as well as mentioning keywords in posts and updates. A great social media page might even attract the attention of influencers in your industry, who can write about your business and link back to your channels.

Social media helps to increase brand awareness

A 2018 study by Global WebIndex found that 54% of social media browsers use these platforms to research products, meaning that this is a great way to attract the attention of potential customers.

One of the best things about using social media for advertising is that the platform itself puts in a lot of the work, with algorithms showing users the pages that their friends are interested in. This means that just by grabbing the attention of one user, you have the potential to advertise to their entire extended network as well.

The research backs this up. More than 91% of marketers surveyed have said that spending a few hours per week on social media has greatly increased their overall exposure.

It makes customers feel more comfortable

Being able to directly interact with a brand helps customers and potential customers to feel secure in trusting the company. In fact, 71% of consumers who have had a positive experience with a brand on social media say that they would recommend the brand to their friends and family (Lyfemarketing, 2018). You can use social media platforms as a place to publicly demonstrate the high value you place in your customer service and interactions.

Social media pages are a more informal place to give your brand a real personality. In 2019, people no longer want to feel separate from faceless corporations, they want to feel part of a family when they buy into a brand. Social media pages give you the opportunity to have some fun and humanise your company for your customers.

Social media saves money

You can sign up for most social media platforms for free, and begin advertising right away with your interesting, original content. In fact, the thing that social media marketing requires above anything else is your time.

Even if you do decide to go for a paid advertising option with any social network, most small businesses will agree that it is best to spend less and devote more energy to write great content and keep your accounts interesting rather than to spend more money showing bland content to potential customers.

When using paid advertising, it is best to start small and keep an eye on how well your strategy is working before spending any more on bought likes and sponsored posts.

Use your social media channels to set yourself up as a brand authority

Simply having customers mention you on social media aids brand recognition. But whether it be via a review, sharing your posts or simply talking about their experience with their friends, having people talk about you shows value and brand authority to the uninitiated. Advertising, when done by real people is strikingly effective, and offers improved brand loyalty in existing customers.

If you can attract the attention of influencers and get them to write or film a review of one of your products, this is one of the most effective ways to draw people that may not have heard of your brand over to your page.

Brands with social media have better conversion rates

Studies show that social media advertising campaigns have a 100% higher lead-to-close rate than outbound marketing, and are responsible for 31% of all referral traffic to websites. As mentioned above, much of this has to do with the fact that social media humanises your brand, and people prefer to do business with people rather than companies.

Social media taps into the ‘mere-exposure effect’, a term coined by psychologists, which describes the phenomenon in which the more we are exposed to something the more we notice and trust it. Posts are rarely only shared one time on social media, and are often seen again and again by people within the same network. A study by Buzzsumo analysed more than 100 million articles and found that resharing content boosts engagement by almost 700%. This is worth taking advantage of by resharing key posts and ideas, or encouraging fans to do so for an incentive.

Talk to us

Want to engage with us? As well as our help and advice on topics such as this, we offer all our clients the full range of accountancy and book keeping services. So why not call us on 01473 744 700 or email us on contactus@accountinggem.co.uk to see how we can be of service to you.

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