Guidelines to being self employed

There are always a number of things to get sorted when you are thinking of being self-employed.

• Register with the taxman
• Getting your paperwork right
• Thinking about insurance
• Tax and Profits
• Tax bills
• Expenses you can claim
• What you can’t claim for
• Documents to keep hold of
• How you can keep track of the money
• Getting professional help

Register with the Taxman

HM Revenue and Customs need you to complete a couple of different forms if you want to be self-employed.  

• A form CWF1 is the main form and this is used to register your self-employment with the taxman.

Follow the link www.hmrc.gov.uk/sa/register.htm for registering for self-employment. You’ll need the following information:

• Your national insurance number
• Your unique Taxpayer Reference number (if you have one, if not HMRC will issue one)
• Date you became self employed

There is a phone number on the website – give them a ring and explain your circumstances they will be able to guide you through the steps.

• You might also want a form CA5601 which is the application to pay Class 2 NIC by direct debit. hmrc.gov.uk/pdfs/ca5601.pdf Send the form to

NI Contributions & Employer Office, Self Employed Services, Benton Park View, Newcastle Upon Tyne, NE98 1ZZ

Getting your paperwork right

Just because you think you are self-employed doesn’t mean that you are in the eyes of the taxman!   HMRC will sometimes want to look at the detail of your working arrangements to check if you are a ‘real’ self-employed person or a disguised employee.   Having a contract and getting the paperwork on this right is part of the process of making sure that you are self-employed and not a disguised employee. Which means you should have a contract stating that you are operating as an independent business between you and your customer. 

Thinking about insurance

When you are in business on your own account it is important to make sure that you have appropriate insurance cover.  Either your own insurance policy or that you are adequately covered under somebody else’s insurance policy.   You also need to check that your car insurance includes cover for business use or add such cover, note that this applies even if all you do is drive to and from a job. 

Tax and Profits

As a self-employed person you are taxed on your business profits, which is your business income less your business expenses.   So what are your businesses income and expenses and what do you need to do to record this information? And what do you do about your tax bills?

Tax bills

As a self-employed person you are responsible for your own tax bills.  The first step in this is preparing and submitting your tax return each year.  The second step is paying any necessary tax.   Because tax will not be deducted from you (as it would if you were employed) you will need to save up for your tax bill and be prepared to write a cheque for a year’s worth of tax all at once!   According to our accountants, as a rule of thumb, you need to save somewhere between 15% and 20% of your income.   So make sure you are saving up!

Expenses you can claim

Direct costs –

Direct costs are those things that you need to use to do the job, like:

• Cleaning products
• Dusters and cleaning cloths
• Franchise fees

Advertising –

• Newspapers
• Magazines
• Trade journals
• Flyers
• Shop windows cards, etc.

Travel costs –

As a self-employed person you can either claim the various costs of running your vehicle (as listed below) or you can claim pence per mile on the basis of your mileage log and you can also claim any other travel costs like parking or train or taxi.

• Car servicing costs
• Car Insurance – the business element
• Car Tax
• Petrol or diesel or other fuel costs
• Or, Mileage records – good website for this is www.tripcatcher.co.uk – you can claim up to 45p per mile (business travel only)
• And, Business travel – bus, train, taxi, Car parking, tolls, etc.

Office costs-

• Home office – light, heat, phone etc. (a percentage of)
• Mobile phone
• Postage
• Stationary
• Printing costs
• Office equipment
• Office equipment repairs
• Computer software
• Business cards and brochures

Professional fees –

• Accountant fees
• Legal fees
• Bookkeeper costs
• Website costs
• SEO and hosting costs
• Marketing costs
• Insurance costs
• Bank Charges

Other things –

• Subsistence if on business (i.e. not excessive drinks, snacks and meals)
• Hire Purchase interest
• Hotel room and meals away for overnight trips (training etc.)
• Overdraft charges
• Interest on business loans
• Trade subscriptions e.g. Chamber of Commerce or FSB
• Networking costs

What you can’t claim for

• Repayment of loans
• Payment of class 2 NI
• Entertaining customers
• Expenses not relating to business
• Your drawings or pay
• Private car journeys
• Household bills (unrelated to the business)

Documents to keep hold of

• Cheque books
• Paying in books/slips
• Business mileage log
• Invoices raised
• Receipts for everything you can claim
• End of year statement of interest from the bank
• Copy of Tax return
• Bank Statements
• Credit card statements
• HMRC log in reference
• Household bills
• Mobile phone bills

How can you keep track of the money?

It is up to you as the business owner to keep track of and record all of your business income and expenditure.  HMRC have regulations about this and can fine you for not keeping adequate records, so good advice is to start as you mean to go on and keep good records. The simplest and easiest way is to have either a manual cash book (browse the shelves in any good stationery supply shop for Simplex brand or Cathedral brand) or using a spreadsheet on your computer.

We have made arrangements for you to get a free copy of an Excel spreadsheet that is appropriate for this purpose and has been prepared for you by a firm of accountants.   Called Easy Stuff that Works, it is a simple and easy way of recording your business income and expenditure.   If you want a copy simply email to request one from info@vowles.co.uk, remember to say you work with Extra Help!

Making Tax Digital (MTD) For Individual Tax & Self Assessment (ITSA)

Making Tax Digital (MTD) for Income Tax represents HMRC’s digital transformation of the UK tax system for self-employed individuals and landlords. This significant change requires digital record-keeping and quarterly reporting through compatible software. (Xero, Quickbooks, Sage, ect)

MTD for Income Tax becomes mandatory from April 2026, so sole traders and accountants need to prepare. Here’s everything you need to know.

What is MTD for Income Tax?

MTD builds on MTD for VAT, aiming to reduce errors and modernise tax compliance. This initiative represents a strategic shift towards real-time digital reporting that enhances accuracy while streamlining the tax process.

The new rules become mandatory in phases. From April 2026, taxpayers with gross turnover over £50,000 must comply, followed by those with earnings over £30,000 from April 2027. In April 2028, it applies to individuals with revenue above £20,000.

Who will be affected?

Sole traders and landlords, including those with UK or foreign property revenue, must comply if their total gross turnover exceeds the specified thresholds (income above 50k from April 2026, above 30k from April 2027, and above 20k from 2028). Importantly, gross revenue refers to turnover before expenses, providing a clear measurement standard for regulatory requirements.

What do taxpayers need to do?

The requirements centre on three core responsibilities. Taxpayers must keep digital records of revenue and expenses, submit quarterly updates to HMRC through HMRC-approved software, and submit a final declaration by 31 January after the end of the tax year, which replaces the traditional Self Assessment tax return.

Quarterly updates include only revenue and expenses from self-employment or property, equivalent to SA103/SA105 forms. Crucially, no tax adjustments are required at this stage, simplifying the submission process while maintaining comprehensive reporting.

Submissions are due on the 7th of August, November, February, and May.

If you need to register for MTD for ITSA you can do so on the following link:
https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

Getting Professional Help

An accountant will be able to help you with any of this if you feel out of your depth, try and find one who is recommended by others.

We have an arrangement with Jonathan Vowles Chartered Accountants that means you will get a free and no-obligation initial consultation.   This can be done in a meeting or over the phone or by Skype.  Email info@vowles.co.uk or ring 01908 616104 to arrange one.

We also have an arrangement with Rebecca Hendra at Diamond Bookkeeping and Accounts who are members of the Association of Accounting Technicians and the Chartered Institute of Management Accountants, who are experts in MTD, Xero Gold Champion Partners, and can also provide a free no-obligation consultation and assist in accountancy software setup and training also, from as little as £7 per month. Email Rebecca@diamondbk.co.uk or call 01752 393353.