Self Employed Newbie needs tax help!

rhubarb1

Hi there

I recently started out as self employed and am trying to figure out how to work out my income tax.
I travel once a week for work so have started a spreadsheet detailing my mileage and I know I can claim 40p per mile. Would the spreadsheet be the kind of proof they need or will they also want more evidence?
Also, when I work from home I use my laptop and sometimes my telephone. What expenses can I claim for these? For instance can I claim for electricity used (it's a power eating laptop)? And how could I go about this?

Also, is it best to work out how much income tax I need to pay after expenses and then pay it by direct debit every month or to let them work it out and receive a bill at the end of the financial year?

Thanks in advance!

orangeslimes

rhubarb1 wrote: »

Hi there

I recently started out as self employed and am trying to figure out how to work out my income tax.
I travel once a week for work so have started a spreadsheet detailing my mileage and I know I can claim 40p per mile. Would the spreadsheet be the kind of proof they need or will they also want more evidence?

probably enough evidence. you could keep your petrol receipts as further evidence though.

Also, when I work from home I use my laptop and sometimes my telephone. What expenses can I claim for these? For instance can I claim for electricity used (it's a power eating laptop)? And how could I go about this?

You work out an estimate - e.g. what percentage of the electricity bill is related to my use of it for work.
if you live in a house with 4 rooms and you use one of those as an office half the time then 1/8 of the the electricity bills for the year might be reasonable.

You can also include a percentage of gas, council tax, mortgage interest or rent using similar logic.

Also remember to include a percentage of broadband and phone if relevant. e.g. if half your phone calls are business related than include 50% of the cost.

Also, is it best to work out how much income tax I need to pay after expenses and then pay it by direct debit every month or to let them work it out and receive a bill at the end of the financial year?

If you are bad at budgeting then paying monthly might be an idea. Although it's probably hard to estimate accurately so you might have more to pay at the end of the year.
Another idea to make sure you have enough money is to put away a certain percentage of your net earnings in a savings account each money.

I would also advise getting proper advise from an accountant because there are lots of fiddly complicated parts of tax law.

hethmar

They are getting tougher on mileage - we have to show the name of the customer and the post codes for our claims.

Also, dont forget if you claim relief on your home that could have repurcussions if you sell up.

The tax wont work out your liability for you - you have to submit your accounts You do need to get an accountant really to sort all this out for you.

Hammyman

orangeslimes wrote: »

if you live in a house with 4 rooms and you use one of those as an office half the time then 1/8 of the the electricity bills for the year might be reasonable.

Is incorrect. If the room is used solely for business, then you can claim the costs as a percentage of the overall household bill. If it is shared use, there is only a flat annual amount.

Hammyman

rhubarb1 wrote: »

Also, is it best to work out how much income tax I need to pay after expenses and then pay it by direct debit every month or to let them work it out and receive a bill at the end of the financial year?

Thanks in advance!

No. Let them work it out and pay it before 31 Jan deadline.

Easiest way:

Take 30-40% of the amount of the invoice after physical expenses, ie any parts you have to buy, and stick it in a high interest savings account. That'll cover income tax plus Class 4 NI, leave some over as a safety barrier and the interest will be like getting an equivalent percentage knocked off the bill.

Hammyman

hethmar wrote: »

You do need to get an accountant really to sort all this out for you.

Honestly, for most sole traders, you don't. I've had three businesses in different fields and have had no need for an accountant simply because they're not that complicated.

rhubarb1

Thanks.
What I might do then is just stick with the claims for petrol, which effectively halves the tax bill anyway down from £88 per month to £44. I'll put this amount away in a savings account and let them sort out how much I owe next April.
It would be useful to claim the electricity that this thing eats, but it sounds complicated. Also if I buy pc parts that I need for the business, can I claim the whole cost of them or just a percentage?
I would like get an accountant but I can't afford one!

hethmar

You can claim parts for the pc - keep the receipts.

The cost will be deducted from your profit

Hammyman

rhubarb1 wrote: »

Thanks.
What I might do then is just stick with the claims for petrol, which effectively halves the tax bill anyway down from £88 per month to £44. I'll put this amount away in a savings account and let them sort out how much I owe next April.
It would be useful to claim the electricity that this thing eats, but it sounds complicated. Also if I buy pc parts that I need for the business, can I claim the whole cost of them or just a percentage?
I would like get an accountant but I can't afford one!

Work out what it costs to claim petrol compared to claiming the HMRC rates of 40p per mile for the first 10,000 miles then 25p per mile after. For example, on a 200 mile journey, your claim at HMRC rates would be £80 but I bet it doesn't cost you £80 in petrol to do that. In respect to equipment, they've made it a whole load easier and you can claim up to £10,000 per year as capital allowances without having to itemise it however remember that if you sell anything you put through the books as business equipment, that counts as income.

When you claim it, you're taking the amount off what you earned so if you earned £10,000, claimed £4000 in mileage expenses and £1000 in equipment, your gross profit is £5000.

In respect to your car, make sure you add business use otherwise you're uninsured whilst driving it for business purposes even if only travelling from home to client.

rhubarb1

Hammyman wrote: »

In respect to your car, make sure you add business use otherwise you're uninsured whilst driving it for business purposes even if only travelling from home to client.

So you mean I have to change the insurance details?

I work as a web content writer so I don't sell anything, however I do travel to weekly meetings with a client about targets, web content etc. I never considered that this would class as business usage for the car.

Hammyman

rhubarb1 wrote: »

So you mean I have to change the insurance details?

I work as a web content writer so I don't sell anything, however I do travel to weekly meetings with a client about targets, web content etc. I never considered that this would class as business usage for the car.

That is actually business use. You need Class A business use which is free with many policies however there may be an admin charge for mid-term policy change.