Even as a self-employed bookkeeper, taxes can be tricky to get your head around.
Here I show you how to get started as a Self-Employed Bookkeeper, unravel some of the confusion around taxes and get you prepped for doing your first tax return.
You are not restricted to just being self-employed either. You can even hold down a full-time job while working as a Self Employed Bookkeeper on the side.
What Taxes Do You Pay as a Self Employed Bookkeeper
You will need to pay Income Tax and 2 types of National Insurance (Class 2 and Class 4) on your earnings.
Earnings mean all the money you are paid as a Bookkeeper less expenses and other allowances you are entitled to.
All Self Employed Bookkeepers must register with HMRC and declare their earnings. Earnings may be tax free because you earn below the personal allowance, however you still need to declare everything to HMRC using a self assessment tax return form.
There is one exception however.
You only need to register and pay tax on your self employment income if you earn more than £1,000 in a tax year (6 April to 5 April). If you make less than £1,000 as a Bookkeeper then it’s tax free and you don’t need to declare it. Useful if you wanted to just test out life as a Bookkeeper or just earn a small amount on the side. This perk is called the HMRC Trading Allowance.
What Are Expenses
One of the perks of being self employed is that you get to set off costs against your income. This reduces the amount of tax you have to pay.
There are rules set out by HMRC which expenses you can claim for (allowable expenses) and those you can’t (disallowable expenses).
Allowable Expenses for Self Employed Bookkeepers
In the main anything you need to pay for in relation to working as a Bookkeeper will be allowable or “tax deductible”. Here are some typical allowable expenses:
- Computer & printer;
- Business cards;
- Website;
- Marketing or paid advertising;
- Office rent;
- Phone and Data;
- Use of home if you choose to work from your house either as a flat rate or a portion of your household bills gas, water, electricity or rent.
- Travel to clients when you use a taxi, tube or bus;
- Mileage claim for using your own car (currently 45p for the first 10,000 miles of driving and 25p thereafter);
- Insurance;
- Training to keep your skills up to date, along with incidental travel and food costs or overnight stays;
- Accounting & bookkeeping;
- Bank charges for a business bank account.
There may be expenses you pay for that you use personally, like your mobile phone. In these cases you can only claim a portion as an allowable expense.
So if you use your mobile phone for 60% work and 40% personal, then you take 60% of the total costs to put against your taxes.
Disallowable Expenses for Self Employed Bookkeepers
After years of people pushing the boundaries and claiming for some questionable expenses, HMRC have a growing list of expenses that are disallowable.
Here are some common examples of disallowable expenses for Self Employed Bookkeepers:
- Parking fines
- HMRC penalties;
- Non branded clothing;
- Training for new skills;
- Travel to your base of work;
- Lunch, unless in special circumstances;
