You’ve just started trading, but you don’t know what to do next. You know you need to make sure you’re keeping the tax man happy, and you need to track how your business is performing. If only somebody could give you some simple steps to complete! Here are 7 simple steps to work through:
You should at least consider how to structure your business. Do you want to be a sole trader? (easier, quicker, cheaper). Or should you consider setting up a limited company? (looks more permanent, less risk for you, more tax efficient). Most businesses start as a sole trader, but make sure that its right for you.
If you are trading, then you need to inform HM Revenue & Customs. Registering as self employed is quick and easy, you can do it by phone or you can do it online. If you want to set up a limited company then life becomes more complicated, and you may want to take advantage of a free initial consultation with an accountant.
3. Pay National Insurance
If you are a sole trader then you will have to pay self employed National Insurance contributions. These will be calculated together with your income tax bill when you file your tax return.
4. Get a separate bank account
If you have set up a limited company then legally you have to have a separate account in the limited company name. If you are a sole trader then it is much easier to keep on top of your accounts if all your income and expenses go through a separate account – it doesn’t have to be a “business” bank account, a second personal account should be just fine. Likewise keep a separate credit card that you only use for the business.
5. Keep all your receipts
Make sure you keep every receipt for all of your business spend. You can scan and store them electronically, or keep the originals. If you write on the receipt how you paid (cash, debit card, credit card, etc.) then it will make it easier for you to reconcile everything later on.
6. Get an understanding of what expenses are tax deductible
7. Set up a spreadsheet!
Doing your own accounts as a sole trader isn’t rocket science – you can do it with a bit of organisation. Make sure you have a spreadsheet to track all your incomings and outgoings, and update it regularly. If you do it every couple of weeks then doing your year end tax return will be a breeze.