Self-employed help

Iwani

Hi all, my husband has been self-employed as a driver for a couple of months. In that time he's been managing the money himself, eg. using a credit card for expenses (diesel, insurance, van rental, etc.) to be paid off each month when he gets paid, putting 30% into savings for tax, etc., and taking a wage.
However it's already clear to me that he's getting into a muddle - he's just not good at managing money and I can see him losing track of what he's doing. He's already managed to pay the credit card late incurring a fine and not clear a balance in full, incurring interest - it's driving me nuts!
I've got him to agree that I will take over managing the money for him, and although I'm generally very good at this sort of thing I've not been self-employed myself so I'm not 100% clear on everything involved. Can anyone give me an idea of what I need to know? Is 30% aside about right?
Also, he's been prioritising as follows: once invoice is paid he 1. takes his wage, 2. pays off card in full, 3. puts the 30% aside - is that right?

One last question - the credit card he uses is for business expenses only, and it's one of those 'reward' cards... is there any reason he shouldn't be using this card? It's useful as he's getting loads of points but it's suddenly occurred to me perhaps there's some rule about business use? Might be totally talking rubbish here! :rotfl:

Thanks in advance!

DCFC79

Shouldnt paying the card off in full come first,

sorry not much help

CIS

You want to make sure the credit card and expenses are paid first otherwise they can soon cause problems if anything goes wrong.

fengirl_2

The 30% for tax needs to come off before the wages as the wages are not deductable for tax puirposes.

Hammyman

Put 30% aside from every job into a high interest bank account. This offsets your tax bill so if you are getting 6% interest, then on the money you put away, that's like getting a 6% tax reduction!

You need to keep a set of books showing income, expenses, outstanding invoices. They don't need to be massively complicated. Keep all receipts filed in order and likewise copies of invoices.

The order of shelling out the money is

1: Credit card and bills
2: 30% for NI/Tax
3: wages.

After the first two months, he really shouldn't be using a credit card at all but at the moment he has no choice due to the screwed up completely the opposite of what he should be doing way he's been paying things.

Phone up your local Business Link. They regularly run free basic accounting courses for the self employed.

heretolearn_2

he's been prioritising as follows: once invoice is paid he 1. takes his wage, 2. pays off card in full, 3. puts the 30% aside - is that right?

No. He doesn't get a wage as self-employed - he gets the profits of the business after tax. Doing it your way (say earns £100, takes out £50 as wage, pays expenses on card of say £20, then puts away 30% of the remaining £30, so £10 for tax. This leaves an extra £20 he presumably takes out as profit, so his total personal income is £70.), is going to leave him seriously short of tax money at the end of the year.

Expenses come off first, leaving the profit. Tax comes off next, and what is left is your husbands. So to follow my previous example, if he earns £100, take off the £20 expenses, then take out 30% of the £80 profit for tax. He puts aside £24 for tax, leaving him with an income of £56.

paulwf

The first thing to do is to get a separate account to use for the business if he isn't already doing so. This will make it much easier to track what is going in and out. Next there should be an option on the credit card for it to be automatically paid off each month by direct debit...I do this with my cards then it doesn't matter if you forget about it.

If you take the invoiced amount and then deduct the expenses from this it will give you the figure you have to pay tax on. Calculating roughly 30% for that is a good idea.

Iwani

Just wanted to say thank you to everyone who replied - some really useful info there and I think I have a much better idea now to sort him out! Think I will set up a business account for him unless there's any reason that's a bad idea. Thanks again, these forums are a Godsend!

Hammyman

Iwani wrote: »

Just wanted to say thank you to everyone who replied - some really useful info there and I think I have a much better idea now to sort him out! Think I will set up a business account for him unless there's any reason that's a bad idea. Thanks again, these forums are a Godsend!

There is never any reason setting up a seperate account is a bad idea. Business accounts have charges but most banks offer free banking for 12-18 months. If his credit history is a bit flakey, he's best applying at the bank he has his main account in unless that's kept in bad order.

inmypocketnottheirs

Santander business account is free I believe.

Iwani

Going to apply for the Santander one I think, his credit history is great as I manage the money. Already had a high interest savings account for the tax/profit money to live in for most of the year, so I think we're on our way with it, just need to unravel the muddle he's left me (doesn't help that he hasn't had work the last 2 weeks) and going forwards things should be better organised.