This guide has been put together by Rachael from Independent Bookkeeping Ltd to help with regards to starting your own bookkeeping for your business, assuming that you are keeping your own records initially or plan to do so for the future also.

From how to register as self-employed to what costs you should ensure you put through your books.

If at the end of this, you have any further questions or queries you can contact Rachael via the email address at the bottom of the page.

In the Beginning

The first thing you should do when becoming self-employed is register with the HMRC. You will need a Government Gateway ID to do this. The steps are fairly simple.

The first thing to do is go to HMRC.gov.uk and follow the steps to register as self-employed.

Once you have done this you will receive a letter through the post, normally within 7 business days, with your UTR (Unique Tax Reference). Once you have this, follow the steps on the letter, you will then get another letter with an activation code.

Once you followed the steps in the letter with the activation code you are all set to go with regards to HMRC. 

Points to be aware of when Self Employed

National Insurance Payments

As you are self-employed the types of NI you will pay is different and listed below. https://www.gov.uk/national-insurance

Class 2: You pay Class 2 NI when you earn £6475 or more per year, you can choose to make voluntary payments if you do not earn this.

Class 3: Class 3 NI is Voluntary Contributions – you would use this to fill or avoid gaps in your National Insurance Record.

Class 4: Class 4 NI is for those who are Self Employed and earning more than £9501 per year.

Please Note If you do not meet the requirements for Class 2/4 and you receive Child Benefit for a child or children under 12 you will automatically get National Insurance Credits so there will be no gap in your National Insurance Record.

Equally if you get help from Universal Credits your qualify for Class 3 credits.

Income Tax

Currently the threshold for paying tax is £12500 (For tax year 20/21)

To ensure you do not have a huge tax bill at the end of your tax year it is advisable to put money away every month and build a pot to pay this.

I advise my clients to put 20% of any income away at the end of each month. This is providing that you are just starting your business and/or you have losses to recoup.

You will probably find that come the end of the tax year the amount you have to pay and the amount you have stashed away is different and you will have some money left over from your tax pot. However, if you do not have losses to recoup or you are not just starting your business and you find yourself quite profitable it is advisable to increase this to 25% per month. https://www.gov.uk/scottish-income-tax

Working from Home

When you are working from home (i.e. your spare room is your office) there are costs that you as a business should pay to your household. https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

So, if you have a 2-bedroom flat and you use your spare room as your office your household should recoup the following costs.

Please note that these figures are an example to show you how to work out what you should pay your household.

Monthly Household Costs – 

  • Mortgage/Rent £450
  • Utilities (Gas/Electric) £65
  • Broadband £40 (If you use the internet for work)
  • Council Tax £120
  • TOTAL £675

So, our imaginary house has 1 bedroom, 1 office, 1 kitchen, 1 bathroom, 1 living room and 1 hallway. You have 6 rooms in total.

You take your total of £675 and divide this by 6675/6=112.50

The amount your business is due your household is £112.50 per month.

Vehicle Mileage

Remember, when you are driving to anything relating to your business, keep a note of your mileage.Not only are you able to claim back .45p per mile, there are other costs that you should be claiming also (unless your business requires the use of a vehicle full time).

So, imagine you have two weekly meetings that you drive to and you go to events/functions/suppliers throughout the year. You keep a note of all the miles to and from these places.

At the end of the year, you add your miles up then you have some maths to do.

When you start your business, you should make a note of the mileage your vehicle has done, at the end of your financial year you need to note the mileage again.

Work out the difference and follow the calculation below.

  • Mileage of Vehicle at the start of the year – 11698
  • Mileage of vehicle at the end of the year – 17543
  • Car insurance (per annum) 235
  • Servicing/MOT/Repair Costs 285
  • Road Tax 30
  • TOTAL 550

11698-17543=5845 miles travelled that year

5845/550=10.6 (round up to 11)

So, if you travel 2567 business miles in one year you should also note and work the following out

-0.45p per mile plus 0.11p per mile for running costs equals 0.56p per mile claim.

2567*0.56=1437.52

This is your mileage claim for your financial year £1437.52

Expenses

When you are noting your expenses for your books, it does not matter how small or insignificant they may seem. You should always log the following, please note that this is not an exhaustive list – 

Costs of Coffee Meetings

Bus Travel (even the day/mega riders)

Printing and Stationary

Postage (both for things you send and for postage on things you order)

  • Uniform Costs
  • Insurance (public Liability, Professional Indemnity)
  • Bank Charges (Recurring or One Off)
  • Interest on Loans, Overdrafts and Hire Purchase
  • Subcontracting
  • Materials/StockEvents/Functions
  • Repairs

Income

Log all income whether this is a sale, tips, loan (to help cash flow or invest in your business) and donations.

I do hope that this guide is of benefit and helps you however if you get stuck or are unsure of anything at all you can contact  Rachael at information@independentbookkeeping.co.uk