Self-employed accounting guide

Being self-employed means that you work for yourself rather than an employer.

We know that the accounting side of being self-employed isn’t always straight forward, which is why we’re breaking it down for you!

You can thank us later. 😜

Here’s some simple steps of what you’ll need to do when self-employed:

1. Register as a sole trader

First, you’ll want to register as a sole trader. You may be wondering, ‘how do I do this?’ 

Luckily for you, we’ve written a step-by-step guide to registering as self-employed. Check this out here.

But that’s not all, we’ve also answered all the most common questions related to setting up as a sole trader – you can check this out here if needed.

FYI: If you decide you no longer want to work for yourself, you’ll need to let HMRC know so that they aren’t expecting you to file a tax return. 

2. Choose an accounting method

When you register as self-employed, you are given the option between cash basis and traditional accounting.

Choose whichever method works for your business. Cash basis is generally the easiest option as you simply track what goes in and out of your bank account.

Traditional accounting may work for bigger businesses.

3. Set up a business bank account

At first, it may be inevitable, but it’s probably good to get into the habit of separating your personal and business finances as soon as possible.

This will help you keep better track of your business income and expenditure.

4. Record income and expenses correctly

You don’t need to show documents when you file your tax return, but HMRC will ask for them if they ever audit you. For this reason, you should keep all documents and receipts organised.

Keep records for at least 5 years.

5. Look into registering for VAT

Not everyone is required to register for VAT, but you’ll have to register if:

• You’re planning on making over £90,000 (the VAT threshold)
• You want to reclaim VAT on eligible expenses

6. Submit your tax return before January 31st each year

For example: the current tax year is April 6th 2024 to April 5th 2025, so you have until January 31st 2026 to submit your online tax return.

We’ve got all the tax year dates you need to know here.

🚨 Don’t forget to claim:

• Your self-employed tax-free allowances
• Your self-employed expenses

7. Understand how Payment on Account works

Payment on Account means you pay your annual tax bill in two instalments. You may have to pay up to 150% the first time, but you can read more about Payments on Account here.

To make it a bit more digestible, here’s a visual: