Tax Advice for Self Employed Cleaners

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Tax Advice for Self Employed Cleaners

Being a Self Employed Cleaner brings with it certain legal responsibilities.  If self employment is new to you, it can be difficult to know where to start and what it all means. 

Here I show you how to get started as self employed, unravel some of the confusion around taxes and get you prepped for doing your first tax return.

Tax Advice for Self Employed Cleaners

What is Self Employment

Self employment means that you work for yourself rather than for someone else. This means you:

  • Are responsible for finding your own work, no one is obligated to guarantee you with work;
  • Need to collect payments from your customers;
  • Buy your own cleaning products and equipment;
  • Will not receive sick pay or holiday pay, so you will go without earnings during these times;
  • Need to register as self employed, work out your own taxes and send a tax return to HMRC.

Being self employed doesn’t restrict you to just working for just one person.  It means you can for as many people as you can handle. Or you can even hold down a full time job while work as a self employed cleaner on the side.

Useful Reading: Being Employed and Self EmployedSelf Employed Tax Tip: Claiming Working Tax CreditsTax Free Childcare for the Self Employed


What Taxes Do You Pay

You will need to pay Income Tax and 2 types of National Insurance (Class 2 and Class 4) on your Earnings.

Earnings means all the money you are paid less expenses and other allowances you are entitled to.

There is often a misunderstanding amongst self employed Cleaners that their earnings are tax free so they can work without any tax obligations.  This is not true.

All self employed cleaners 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.

There is one exception however.  

You only need to register and pay tax on your cleaning income if you earn more than £1,000 in a tax year (6 April to 5 April).  

If you make less than £1,000 from cleaning then it’s tax free and you don’t need to declare it.  

Useful if you wanted to just test out life as a Self Employed Cleaner or just earn a small amount on the side.  This perk is called the HMRC Trading Allowance.

Useful Reading: What is a Personal Allowance, Tax and National Insurance When You’re Self Employed


How to Register as Self Employed

If you make more than £1,000 from cleaning or you intend to build up a steady self employment income then you should register with HMRC.

Remember a tax year runs from 6 April to 5 April.  And when it comes to taxes get used to thinking of everything in this way.  It is on this you need to work out your earnings and taxes for HMRC.

When to Register as Self Employed

Officially you should register by 5th October in the second tax year of becoming a Self Employed Cleaner.

So if you became a Self Employed Cleaner on 1 April 2018 then you would need to register by 5th October 2018.

How to Register as Self Employed

You can register as Self Employed online.  It’s fairly easy to do yourself and I’ve put together a video guide here.

Useful Reading: How to Register as Self Employed Video TutorialWhat is a UTR Number


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 Cleaners

In the main anything you need to pay for in relation to working as a Cleaner will be allowable or “tax deductible”.  

Here are some common examples of allowable expenses for self employed Cleaners:

  • Cleaning products and materials;
  • Agency fees;
  • Advertising;
  • Travel;
  • Branded Uniforms;
  • Insurance;
  • Accountants fees;
  • 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 Cleaners

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 Cleaners:

  • Fines and penalties;
  • Lunch, unless in special circumstances;

Useful Reading: Allowable Expenses, Disallowable Expenses, Claiming Business Travel


What Records Should You Keep

Everything!

Once you are self employed you need receipts to support all the expenses you want to claim You’ll also need to keep a record of everything you are paid whether in cash, card or bank transfer.  

The simplest way to do this is to:

  1. Open up a separate bank account for yourself and set this to send/receive any payments. That way when tax time comes you have a record of everything that has happened.  
  2. Save all your receipts and reports in the cloud using google drive or dropbox (both are free up to a certain amount of storage).

If you want to go one step further then you can set up a bookkeeping spreadsheet or use an app like Freeagent.  Whichever you choose, these will help you track your earnings and tax liability (avoiding any nasty surprises at tax time).

What is a Bookkeeping Spreadsheet?

A bookkeeping spreadsheet is a simple summary of your income and expenses.  You can set one up on Google Docs or Excel and it is best to have one for each tax year.  

A bookkeeping spreadsheet is a good idea because:

  • They are free to set up
  • Gives you the figures you need to estimate your taxes

What can a Bookkeeping App Do For You?

Bookkeeping apps are an automated way to record your income and expenses.  There are a few out there now but the best ones should have these features:

  • Connect to your bank account to automatically pull transactions;
  • Store copies of your receipts;
  • Estimate your taxes on an ongoing basis;
  • File your tax return for you.

The downside is choosing an app comes with a cost but this is for most people is outweighed by the time saving and avoiding the need to find an accountant to file your tax return.

I use Freeagent to log all my income and expenses.  It ticks all the boxes in terms of functionality and is reasonably priced.

Useful Reading: Bookkeeping When You’re Self Employed, How to Organise Business Receipts


What is a Self Assessment Tax Return Form

A Tax Return is a form you need to complete online once a year by 31 January each year. The penalties for missing this deadline start at £100.

A tax return contains:

  • Your personal details;
  • A summary of all your income not just from cleaning (like bank interest, employment income and rental income);
  • Details of allowable expenses you wish to claim against your taxes;
  • A tax calculation;
  • How much tax you need to pay.

One tax return form covers a tax year.  A tax year runs from 6 April to 5 April.  So a tax return for 2017/2018 covers earnings during 6 April 2017 to 5 April 2018 and needs to be filed by 31 January 2019.

You’ll need to pay tax due by this date too, as well making a contribution of 50% towards your next years tax bill.  This is called a Payment on Account.

You’ll need to make a payment on account if:

  • Your tax bill is over £1,000
  • You pay less than 80% of the tax they owe through the payroll system

There are proposed changes to the reporting system called Making Tax Digital.  This will abolish the current system of reporting once a year and replace it with quarterly reporting and tax payments.  This change currently on hold but will be enforced at some point.

Useful Reading: Self Assessment Tax Return Form, Making Tax Digital, Payments on Account.


How to Fill Out Your Tax Return

To get started with filling your tax return you will need any paperwork which reflects your earnings including:

  • Personal Information
    • Your Government Gateway Login and Password
    • National Insurance Number
    • Partners Information if you want to claim Marriage Allowance
  • Income
    • P45 or P60 issued covering employment income and tax deducted
    • P11d Benefit in Kind Forms
    • Dividend, savings and interest certificates
    • Pensions
    • Rental income and expenses
    • Self employment income and expenses
How To Submit Your Self Assessment Tax Return

You need to submit your self assessment tax returns online, except for in really exceptional circumstances.  

The form can be found by logging into your Government Gateway Account to complete your self assessment tax return online. You set this up when you registered for self employment.  Once logged in you can choose the option to “Complete Your Self Assessment Return”.

Complete the Right Sections

You need to complete the first part of the tax return form with your personal details.  This includes a series of questions which help ‘Tailor Your Return’. By doing this the right sections will be provided for you to fill in.  For Self Employed Cleaners you’ll need to make sure you fill out the Self Employment section to declare your business income.

If you have a full time job you’ll need to enter your earnings and any tax deducted by your employer in the “Employment Section”.

Useful Reading: How to Prepare to File Your Own Tax Return


Your Key Actions to Become a Self Employed Cleaner:

  1. Register as Self Employed
  2. Open a separate bank account
  3. Set up a bookkeeping spreadsheet or Freeagent
  4. Set aside money for taxes each month at your highest tax rate.

Head over to the Business Hub. It’s full of templates and guides to help you manage your finances when you’re self employed. And don’t forget to find me on Facebook.