8 top tips for your self employed tax return

Completing your self employed tax return can be a bit of a pain at times.

Here’s some quick tips to make the whole process a little easier.

1) £1,000 registration limit

If your income from your business is £1,000 or less, under the Trading Allowance rules, you do not need to inform HMRC that you’re self employed.

2) Trading Allowance rules instead of recording costs

For businesses which incur little in the way of operating costs the Trading Allowance rules mean that you can claim a £1,000 flat rate amount against your income rather than record all of your costs. Conditions do apply; so it’s worth reading all the rules if you want to use this allowance.

3) Mileage Costs

If you use a vehicle for your business then by far the easiest method for claiming your motor expenses will be to use the allowable mileage rates for relevant business trips.

These are:

45p per mile for the first 10,000 in the tax year

Then

25p per mile thereafter

If you use a motorbike instead of a car you can claim 24p per mile.

For a business trips by bicycle you can claim 20p per mile – a really useful rate of you’re going green or healthy.

4) Use of home as office

If you work at home using part of the property for your business you can claim for the costs of doing so as a “use of home as office” charge in your accounts.

This can be done either through a use of home as office calculation which must be supported by actual figures should HMRC query your workings.

Alternatively you can use a simplified method and just claim £6 per week; no need to keep receipts / calculations.

5) Budget for tax

It’s essential to budget for tax as you go so that there are no huge surprises at the end of the year. The key is to remember that not all income belongs to you. Assuming that you’ve made a profit you will pay tax, and potentially additional National Insurance (see below). Income tax kicks in once you’ve exceeded the annual personal allowance (for the tax year 2024/25 this is £12,750).

After that you’ll pay tax at 20% up to the higher rate band which kicks in at total income of £50,270.

So a useful rule of thumb for income tax for the tax year 2024/25 is:

0% on the first £12,750; 20% on income between £12,750 and £50,270; 40% on income between £50,270 to £125,140; and 45% on income over £125,140.

Once you hit an income of £100k your personal allowance starts to decrease by £1 for every £2 of income until you reach £125k when you lose your personal allowance altogether.

Remember that income tax applies to all income which includes profit from self employment, wages and salary, profit from renting out properties and so on.

6) Don’t forget Class 4 National Insurance

It’s not just Income Tax that you’ll potentially pay on the profits from your self employment. You may also have to pay Class 4 National Insurance which is due on profits over £12,570 for the tax year 2024/25 at the following rates:

6% on profits between £12,570 and £50,270, plus 2% on profits over £50,270.

Class 4 contributions are calculated on the self assessment tax return and will also be shown in your tax calculation.

7) Payments on Account Explained

Your tax bill may be higher than you thought. This is often due to the addition to the bill of payments on account. This is an amount that you have to pay on account against the tax due in the current year. HMRC uses the payments on account system to collect at least some of the tax you owe in the current tax year. The payments that you make on account are based on earnings in the previous tax year.

8) Use an App

If you’re tech savvy and like to do things on the go then using an App like Coconut will make keeping your accounts up to date a whole lot simpler. Coconut is specifically designed for freelancers, self-employed people and small business owners. It’s a business current account that takes care of your accounting and tax at the same time. Simple and easy to use it’s certainly worth a look when it comes to keeping the books.