Navigating Tax and Money

If you run your own business and are responsible for its success, you are classed as self-employed. This means you are the boss, the worker, and the person responsible for the bookkeeping. You must register your self-employed status with HMRC.

The deadline for registration is technically by 5th October in your business’s second tax year, but my advice is to do it as soon as you start trading. Why wait and risk a fine? Once registered, you will receive a Government Gateway activation code, allowing you to file your Self-Assessment tax return online for the tax year, which runs from 6th April to 5th April.

A quick disclaimer: I am a VA Coach and Mentor, not a financial expert. This post provides a basic overview. For specific advice, always consult a qualified accountant, a bookkeeper, or the HMRC website.

Making Tax Digital (MTD)

We cannot talk about tax without mentioning Making Tax Digital (MTD). This is a government initiative requiring businesses to keep digital records and use MTD-compatible software to submit their returns.

If you are VAT-registered, you should already be using MTD. For self-employed individuals and landlords, MTD for Income Tax is being rolled out in stages based on your income level. This is not just a “suggestion”; it is a legal requirement to move away from paper records and basic spreadsheets toward digital integration. If you are not using software like FreeAgent, Xero, or QuickBooks yet, now is the time to start.

Your Financial Responsibilities

You are liable for tax on your profits, not your total turnover. This is why it is vital to track every legitimate business expense. Every pound you claim as a business expense lowers your taxable profit.

1. Income Tax

You pay tax on your profits once they exceed your Personal Allowance. For the current tax year, the standard Personal Allowance is £12,570.

• Basic Rate: You pay 20% tax on profits between £12,571 and £50,270.

• Higher Rate: You pay 40% tax on profits between £50,271 and £125,140.

Tax is usually paid in two “Payments on Account” on 31st January and 31st July. Do not let these dates sneak up on you; set aside a percentage of every invoice from day one.

2. National Insurance (NI)

National Insurance rules have seen significant changes recently to simplify the system for the self-employed.

• Class 2 NI: For many self-employed people, mandatory Class 2 contributions have been abolished, though you may still receive a National Insurance credit toward your state pension if your profits are above a certain threshold.

• Class 4 NI: This is the main contribution you will pay on your profits. Currently, the rate is 6% on profits between £12,570 and £50,270, and 2% on anything above that.

HMRC calculates these amounts automatically when you file your Self-Assessment.

3. VAT

Value Added Tax (VAT) is often the “scary” one. You must register for VAT if your total VAT-taxable turnover over the last 12 months goes over £90,000. You must also register if you expect it to go over that threshold in the next 30 days.

Once registered, you must:

• Charge the correct amount of VAT (usually 20%) on your services.

• Pay any VAT due to HMRC.

• Submit VAT returns digitally every quarter under MTD rules.

You can register voluntarily if your turnover is lower, which can be beneficial if you want to reclaim VAT on business purchases, but it does mean you have to add VAT to your own invoices.

Get Your House in Order

Understanding the financial side of your business is part of being a professional. It gives you confidence and ensures you aren’t hit with a surprise bill you can’t pay. If numbers aren’t your strength, invest in a good bookkeeper or accountant early on. It is one of the best investments you will ever make.