The big thing everyone in the blogging world is working really hard on right now is earning money.
A “monetised” blog is powerful, and brands seem to be more and more aware of this as they offer sponsored posts, advertising and affiliate schemes. Having a successful blog, with loyal and engaged visitors is, of course, the main aim of most bloggers, but when a hobby becomes a full time “jobby”, earning a little extra cash to support your time spent is very welcome.
But, money earned from your blog is usually taxable, which means a whole load of extra admin to make sure you do everything by the book. This post is here to give some insight into the world of self-assessment, plus tips I’ve learnt from a few years of doing my own tax returns.
This post is split into two parts:
Part 1 (where you are now!) talks about registering as self-employed, important dates and types of accounting.
Part 2 will cover what you need to complete your tax return, plus hints on allowable expenses.
Please note that this post should not be taken as “advice” and is written simply from my own experience. If you have any concerns about filling out your own tax return you should always use official sources such as the UK government website, or look to work with an accountant.
Registering as Self-Employed
First things first, you have to register as self-employed. There are a few different options:
- Sole Trader – this is best for small incomes and those of you working, as the name suggests, solo. The money you take in is your income, and you offset expenses against this to leave you with your profit, on which you may have to pay tax.
- Partnership – in a business partnership, you and your business partner share personal responsibility for your business. You can share all profits between the partners, each of whom must pay tax on their share, and you’re both personally responsible for your share of any losses or bills.
- Limited Company – this is best for larger turnover businesses. In a Limited Company the income goes into the business accounts. Again, expenses are offset against this, and corporation tax is paid, but you can then pay yourself a wage or dividends. Any risk and liability on the business, e.g. bankruptcy, is limited to the company only, and won’t affect your own personal finances.
I’m registered as a sole trader and so have little knowledge on partnerships and limited companies. Because of this, the rest of this post will assume you are also going to be registering as a new sole trader.
The actual registration process couldn’t be simpler – a quick phone call to the HMRC is all it takes. They’ll ask you a few questions, e.g. when you started trading (this can be in the past – see below for important dates), what your trading name is, registered address, expected income, etc. plus your national insurance number!
There are a few key dates to keep in mind:
5th October – register before this date to be able to submit your return for the previous tax year.
31st October – the deadline for paper self-assessment submissions.
30th December – complete your tax return by this date if you want HMRC to take your owed tax through PAYE.
31st January – the deadline for electronic submissions*.
* In order to complete your tax return online you have to register for an account. Go to the gov.uk website to do this.
Type of Accounting
There are two main types of accounting that you can follow to complete your tax return, and you need to decide, before you start keeping records, which method is best for you and your circumstances:
Cash basis accounting – suitable for most small businesses with an income of £82,000 or less. You only record income when you receive money, or expenses when you pay a bill.
Traditional accounting – this type of accounting is where you record income based on the date you invoiced, and expenses on the date you were billed.
There may not seem to be much difference between the two, but with traditional accounting you must keep records of what you’re owed but haven’t received yet, what you’ve committed to spend but haven’t paid yet, etc. You also should claim costs for equipment, machinery, vehicles, etc. as capital allowances if you use traditional accounting, whereas with cash basis only a car bought for your business should be claimed as a capital allowance and everything else can be claimed as allowable expenses in the normal, simpler way.
End of Part 1
That’s it for Part 1, keep an eye out for Part 2 which will cover what records you need to keep, and some handy tips on allowable expenses which could save you money.