Presented by Tim Wicksteed SWMobile “Going Freelance” 29/05/13 www.twicecircled.com @twicecircled tim@twicecircled.com Step 1 - Should I Self-Account? Accountants cost money… BUT It takes time to do your own accounts Is your time better spent working? Yes No Steady work? Unsteady work? Good rates? Not freelancing full-time? Professional accounting £30/m Control freak Genuine interest? “I’m going to do my own accounts!” Step 2 – Sole trader/Ltd Company Sole trader means only one tax form to fill in at the end of the year. Limited company is significantly more complicated but there are advantages: Tax efficient Possibility to expand business, take on staff/contractors Limited liability This presentation only deals with the Limited Company route. 1Unique Taxpayer Reference Step 3 – Setup 1. 2. 3. 4. 5. 6. 7. 8. 9. Incorporate your company with Companies House Receive UTR1 from HMRC in the post Request an Authentication Code for Web Filing from Companies House Register your company with HMRC/Government Gateway Wait until you start trading Log-in to HMRC and use your UTR1 to enrol for Corporation Tax Receive confirmation pin from HMRC in the post Enter pin into HMRC to finalise enrolment Repeat steps 6-8 for PAYE (if applicable) Step 4 – Keeping Accounts Optional guidelines are in Financial Reporting Standard for Smaller Entities (FRSSE), effective April 2008 Make a spreadsheet to track everything at the beginning! Update it as you go along! Income Statement Twice Circled Ltd. ACCOUNTING PERIOD Use my simple template Year Quarter From To 2013 2013 2013 2014 Year Total 1 2 3 4 06/04/13 06/07/13 06/10/13 01/01/14 06/04/13 05/07/13 05/10/13 05/01/13 05/04/14 05/04/14 TURNOVER Development Services Total turnover £0.00 £0.00 £0.00 £0.00 £0.00 £2,000.00 £2,000.00 £0.00 £2,000.00 £2,000.00 COST OF SALES GROSS PROFIT OR LOSS £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £2,000.00 £2,000.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 DISTRIBUTION COSTS Travel Total distribution costs £50.00 £50.00 £50.00 £50.00 Step 5 – Paying yourself Option 1 – Dividends and more dividends! Pay 20% corporation tax on everything. Pay additional 25% on any dividends beyond £32,010 (before tax) Option 2 – Tax free salary + Dividends Pay 0% on your salary up to £7696 (2013/14 Secondary Threshold) Pay 20% corporation tax on everything above £7696 Pay additional 25% on any dividends beyond £32,010 (before tax, including the £7696 salary) Quick recap: PROFIT = GOOD! WRONG! Corporation tax is proportional to profit! Step 6 - Expenditure Standard expenses Things your company pays for directly: Salaries Rent Utilities Etc. Step 6 – Expenditure (2) Reimburseable expenses But wait! Only certain items can be reimbursed by your company as business expenses, see 480 and 490. Key notes: Business mileage in your own car can be reimbursed (without receipt) at 45p per mile (< 10000 miles) Keep a record of every trip you make though Receipted travel and subsistence (hotels, trains) have to declared on form p11d and self-assessment. Excellent explanation. Get a dispensation to avoid the hassle. However for both of these you need to register your company for PAYE. Step 6 – Expenditure (3) When you buy equipment your company does not incur a loss Appears as asset on balance sheet Hence, does not reduce corporation tax liability Annual Investment Allowance (AIA) for capital expenditure: Equipment Software £250000 for 2013/14 Step 7 – Corporation Tax Return Decide on your company’s tax year Login to Companies House and change your company’s accounting period to line up with your tax year Wait until the company’s tax year has finished… Login to HMRC and file your corporation tax return – you will have an option to change the dates! Follow the process through and download form CT600 Use the Joint Filing service to do your Company Accounts simultaneously Your spreadsheet should have all the numbers you need to complete the form Settle up the corporation tax due 9 months later “I’m going to do my own accounts!” Questions? Presented by Tim Wicksteed www.twicecircled.com @twicecircled tim@twicecircled.com Slides available at: http://www.twicecircled.com/resources/tools/accounting/accounting_for_freelancers.pptx