Am I doing it correct? Self employment

Rtj123

I've become self employed and slowly building up. I'm getting most work from one person at the moment which I am grateful for. They pay me in cheques. I invoice them for the work and what they owe me, when they pay me (usually the same day) I file my copy of the invoice and write on when I received payment and keep a bank receipt showing the cheque went in. I'm also keeping receipts of things I need. Is there anything else? To sum up I have a file full of invoices for work I have done and a box full of receipts that I have purchased thing for work.

Hopefully someone can confirm I'm doing things correctly
Thanks

TyreLever

Your definitely not doing anything wrong. It can only be a good thing having a record of all your expenses and payments. Cant confirm anything coz I know sod all, but that would be all the more reason I would keep records of such stuff.

ssparks2003

be careful of doing too much work for one person, because you could cease to be self employed.

jobbingmusician

Have you told HMRC you are self-employed? Have a look at the second half of the first post in this thread for some other advice

https://forums.moneysavingexpert.com/discussion/5159122

engineer_amy

keep a running spreadsheet of income and expenditure each month, a summary of your invoices and receipts. it will make it easier at year end if its already tallied up, and just needs a check over by you or your accountant.


Also consider keeping a separate bank account or savings account and put away 20% of each cheque that you receive. Build this up and its there to pay your tax bill at the end of the year, or fund payments on account for self assessment. Obviously this depends on what the income will be over the year, if you earn more than the personal allowance.

Rtj123

ssparks2003 wrote: »

be careful of doing too much work for one person, because you could cease to be self employed.

How do you mean?

Rtj123

engineer_amy wrote: »

keep a running spreadsheet of income and expenditure each month, a summary of your invoices and receipts. it will make it easier at year end if its already tallied up, and just needs a check over by you or your accountant.


Also consider keeping a separate bank account or savings account and put away 20% of each cheque that you receive. Build this up and its there to pay your tax bill at the end of the year, or fund payments on account for self assessment. Obviously this depends on what the income will be over the year, if you earn more than the personal allowance.

Thankyou.
I've also been doing a little bit of work for a family friend. They paid me in cash, I didn't invoice them as such as I felt it would be weird to do for a family friend. Anyway obviously I need to declare the cash at the end of the tax year, how do I go about doing this? Make a invoice for myself and keep it in my records and deposit the cash into my account?

PossiblyOverworked

@Rtj123 - There are certain "red flags" for the inland revenue that taken together could indicate that you are actually an employee 'in all but name' and should be treated as such rather than as a self employed e.g. do they ('employer'/'client') dictate the hours you work and where, they provide all the equipment, they supervise you in detail, they can re-assign you to other duties etc.

You don't need a formal "invoice" for SE (unless the family friend's business requires it for their accounts payable) but you do need to keep your own records and be able to evidence it if you were audited.

I am SE alongside my main employment (totally unrelated industry) although in my case I am selling actual "things" rather than services. I have a simple Excel based system of when I've paid out for stock, materials etc and when I have received payments from customers and so on and fill in my tax return based on that. If they are paying in cash I would make up some sort of receipt to be signed for your records. (ETA: by "make up" a receipt I mean create one and get it on record, not just "make it up" when it comes to tax time!)

I think a previous poster already mentioned it but I will reiterate - if you are trading as self employed you need to make it known to the revenue within 3 months of starting. And then they will get you to fill in self assessment with a "unique tax payer reference" they will give you (if you don't have one already) when you declare you are going SE.

ACG

Your not doing anything wrong as such, but I think you are making life difficult.

Set up a bank account for the busines if you havnt already.
At the end of the year, send the bank statements to your accountant. They will see the payments and class that as income, they ill see your expenditure and put it in where necesary and then tell you how much tax you need to pay.

I literally send my accountant my bank statements and tell him how much some of my home bills are (as you can claim some of those costs back) and he sorts it all out, there is not a piece of paper in my office to do with my accounts.

PossiblyOverworked

Also as a general piece of advice (which you are free to take or leave!) Don't let the "family friend" aspect of the relationship lead you into doing things informally or "off the record", or e.g. leaving payments unpaid for months on end, if you genuinely are doing it as part of your business and being paid for it. You can work with/for friends of course but please keep that distinction as you proceed...... Yes I've been stung by this.

Rtj123

ACG wrote: »

Your not doing anything wrong as such, but I think you are making life difficult.

Set up a bank account for the busines if you havnt already.
At the end of the year, send the bank statements to your accountant. They will see the payments and class that as income, they ill see your expenditure and put it in where necesary and then tell you how much tax you need to pay.

I literally send my accountant my bank statements and tell him how much some of my home bills are (as you can claim some of those costs back) and he sorts it all out, there is not a piece of paper in my office to do with my accounts.

That is my next job to open a separate account and all money related to work will go into that.
At the moment I only have one client, I haven't worked for a couple of weeks and struggling to gain more work so I'm very grateful for the one client I have!