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Self-employed accounting guide

Being self-employed means that you run a business of one, so HMRC expects you to act like one.

What you need to do:

1. Register as a sole trader

First, check out our step-by-step guide to registering as self-employed.

Then you might also want to read the most common questions related to setting up as a sole trader here.

You’ll also need to remember to let HMRC know when you stop being self-employed. They’ll still expect you to file a tax return otherwise.

2. Choose an accounting method

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

We recommend just ticking cash basis as it’s the easiest: you simply track what goes in and out of your bank account.

3. Set up a business bank account

We know it’s tempting, but don’t mix your personal spending with your self-employed income and expenses.

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.

You must keep records for 5 years.

5. Look into registering for VAT

You should register only if:

  • You’re planning on making over £85,000 (the VAT threshold), and
  • You want to reclaim VAT on eligible expenses.

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

For example: the tax year is April 6th 2017 to April 5th 2018, so you have until January 31st 2019 to submit your tax return.

Read more about the tax year dates here.

Also, don’t forget to claim:

7. Understand how Payment on Account works

You might have to pay up to 150% the first time – read more about Payments on Account here so you know what to expect.

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