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.
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.
What You Need To Complete Your Return
When the time comes around to filling out your self-assessment, it can be quite a stressful experience. If you’re not organised then you can spend ages looking for the information you need to complete your return. But, if you get ahead of yourself and keep organised, the tax return process is actually fairly straightforward.
In order to complete your tax return you will need the following documentation and records:
- P45 or P60 – if you’ve left employed work part-way through the tax year, you will need your P45, which shows your pay and tax to the date you left. Otherwise, if you’re employed on the 5th April, you will need your P60, which shows your pay and tax for the year.
- P11D – any expenses and benefits you receive from your employed work will be shown on the form P11D.
- Income records – invoices, or a cash book style record of any income you’ve made from your self-employed business (blogging!).
- Expense records – receipts for any expenses you have incurred.
If you claim other benefits, like tips, tax award schemes, meal vouchers, etc. as part of your employed work then you must also keep a record of these, as well as VAT records if you’re registered for VAT through your self-employed business.
Everyone will have their own preference as to how to keep income records. You can keep them electronically in a spreadsheet, or in a traditional cash book – whatever works for you. Personally, I prefer to have paper for everything, so I have a cash book for my income, and keep paper receipts in a 12 pocket file (one for each month). Try one method, and if it doesn’t work for you then you can always change it.
The word “expenses” has come up a few times already in this post, but what exactly counts as an expense? Essentially, expenses are reasonable costs to your business that allow you to do the work you need to do. No you can’t claim those pretty high heels you bought, or your fancy camera that you’ve had since before you started blogging… but you can claim a lot of things that perhaps might not spring to mind right away. Here are some perhaps less obvious business expenses you might be able to claim:
- Equipment – stationery, postage, printing, etc. can all be claimed as allowable expenses. Bought a new laptop specifically for blogging? Or a camera just for use at events and for product reviews? Yes, you can also claim these. Even if they’re not entirely for business use, you can still part-claim. E.g. if you bought a new laptop that you use half of the time for blogging, and half of the time for looking up pictures of cats, you can claim 50% expenses for it. The same also applies to your mobile phone package and data usage.
- Travel and meals – heading into London for events every week can get expensive, and luckily this can also be offset against your blogging income. So keep hold of all those parking and train tickets, and record your mileage for anywhere you drive for business purposes (you can either claim the business proportions of all your vehicle costs, or you can claim “simplified expenses” for this, i.e. a flat rate). You can also claim costs for hotel rooms and meals out if you’re staying overnight for business.
- Facilities – blog from home? Did you know you can claim a proportion of your electricity, broadband, telephone and heating, and even Council Tax and mortgage interest or rent? Work out how many hours per month you use those things for blogging and divide that by the number of hours in a month and you have a percentage that you can multiply by your bills to give you a tax-deductible amount. Or you can claim “simplified expenses” (a flat rate) if you work from home 25 hours or more per month. Handy eh?
- Marketing and Subscriptions–you can claim costs for advertising, giving free samples, website costs, subscriptions to trade or professional journals, and membership to trade bodies or professional organisations. For example, cost of membership to the Health Bloggers Community is tax-deductible!
This should give you everything you need to log on and complete your first tax return.
Go through the return step-by-step and with all the above records already taken care of it should be a doddle.
Thanks so much for reading – I hope it’s been useful to you. Remember, if you have any doubts about completing your tax return, you can check the Taxes for Bloggers workshops in our introduction to the business of influence.