Sorting your taxes and duties as a freelancer who is sole trading

It’s perceived as being less admin-heavy than being a limited company freelancer, but freelancing as a sole trader still has its fair share of responsibilities to consider and too often, the self-employed simply aren’t aware of these, writes Richard Hepburn, operations manager at Gorilla Accounting.

With an at times unforgiving HMRC, it’s vital to take into account some of the key dates and deadlines and meet them by being organised and thorough with your record-keeping as a sole trader business owner.

Tax Reporting deadlines

There are various reporting deadlines to consider when you are self-employed and although they differ depending on what applies to your sole trader business, you can’t afford to be unaware of some of the main ones, as HMRC penalties and interest may be applied for late filing.

VAT

Firstly, if your sole trader business is VAT-registered, the VAT returns should be filed on a quarterly basis. The ‘due date’ for the submission and the payment would be one month and seven days after the period end, so for a VAT quarter from 1^st June to 31^st August, the due date would be 7^th October. There is an option to use an annual VAT scheme where payments are made through the year and a final submission is filed after 12 months.

SA

Secondly, Self-Assessment. Well, ‘SA’ will usually apply to you if you receive self-employed income. The self-assessment is designed to report to HMRC any taxable income received personally. There are several different reasons why an individual would be required to file one each year, such as having sole trader /self-employed income, rental income or dividend income, among other things. The deadline for filing the self-assessment and paying any tax liability is the next 31^st January following on from the end of the tax year.

A helping hand?

These are just two of the big deadlines and their associated requirements. There may be more that affect you, especially if your sole trader freelance business takes on an employee. With the fast-paced demand (hopefully!) for your business and skills, it’s worth strongly considering getting the assistance of accountant, so you can focus on your business and they can focus on its numbers.

And ideally, don’t just settle for any accountant! As a self-employed sole trader, you ideally want an accountant who specialises in the needs of freelancers and independent workers such as yourself. More than high street tax advisers in our experience, these freelancer-focussed tax specialists should be primed to guide you through the duties and deadlines that apply to your sole-person (or small-number of persons) business.

Record-Keeping

Keeping good records is essential for all businesses, including if you’re self-employed or working as an incorporated freelancer (i.e. through a limited company). You need to be able to show that all of your records are in order so that you can prevent issues from arising. As a sole trader or incorporated freelancer, you have several financial responsibilities to comply with, potentially including keeping certain accounting and company records. Aside from the fact that you are required to do this by law, there are also many benefits to ensuring that all documents, transactions and returns are recorded correctly.

To avoid HMRC penalties, it’s fundamental to pay taxes correctly and on time. If your records are accurate, you can be sure your information is correct, and avoid wondering if you’ve made an error somewhere in the process. Another advantage is that accurate documentation will help you to plan for tax payments, meaning you will always be prepared when payments become due.

And if you don’t have your ducks in a row…

Keeping complete and accurate business records ensures that you have proof of expenditure as well; if you don’t have this information, then you won’t be able to claim tax relief on it. This is applicable whether you’re a sole trader or limited company owner.

Whether you’re dealing with HMRC, clients or suppliers, being organised is paramount. Of course, having everything in order will also help you should you find yourself investigated by the tax office. HMRC may ask to see your financial information, in which case it’s so much better if you can show everything is up-to-date and accurate.

As a sole-trader, the last thing you want is having to pay penalties to HMRC due to late or incorrect tax information. Running your business can be stressful enough without also worrying about whether you’ve paid the right amount of tax or if you filed all returns on time. Having good, accurate records will help you to pay the right amount at the right time.

MTD – the motivation you need?

Although it is possible to keep records manually, this is no longer the best option. Since the implementation of Making Tax Digital in April 2019, financial records from transactions and sales to VAT returns and income tax should be stored digitally via accounting software compliant with HMRC. This is a requirement for some businesses – those that are VAT-registered and with a turnover above the VAT threshold of £85,000, and best-practice for others.

This is where bookkeeping software can really come into its own. A cloud-based service will help you keep on top of your paperwork and keep certain records digitally, including the all-important VAT information. Whether you’re new to the freelance world, or already well-established, you can now keep track of expenses, income and taxes in just a few mouse clicks. Oh, and to really banish that shoebox of receipts back to the bed under which it came, such online systems are increasingly user-friendly. Many offer free trials so you should be able to sample whichever system suits you and your self-employed operation.

Final thought

Whatever system you end up going for, whether it’s the likes of FreeAgent, or a spreadsheet (which we no longer universally recommend to our clients who are freelancers), remember: the onus is on you to manage your freelance business effectively and lawfully, with quick, compliant, informed decisions the only decisions you’ll want to be taking to both thrive, commercially, and avoid the wrath of HMRC, hopefully unconditionally.