If you need help with your business costs
Understanding your cash flow
To help you complete your personal income and expenditure, it’s important to determine the income you receive from your business.
To do this, it’s important to draw up a business cash flow, which is a projection of your future business income and expenditure.
Your cash flow needs to be an accurate reflection of how your business is doing.
What you need to know:
- Turnover for the year – this is the money your business receives before any expenses or tax is deducted.
- Expenses – a full breakdown of expenses of everything that you pay for that is related to your business.
However, as it’s a projection for the coming 12 months, and you may not have the resources to produce the key figures, you should base it on the following:
- The last 12 months of work if it’s likely to be the same
- If it’s a new business and you have a business plan
- If you know how much you take home after expenses
After deducting your expenses from your turnover, you can then work out the tax payable.
You will then be left with the amount you can take out of your business every month – this will be the income you’re able to take from your business to use in your personal income and expenditure.
Keep personal and business costs separate
Even if you use the same bank, you should keep your personal and business costs, as well as your personal and business bank accounts, separate.
Anyone who is self-employed should have a separate business account which is only used for business purposes and which has no connection with their own personal bank account and everyday personal outgoings.
If you’re planning for your self-assessment tax bill
- The deadline for your self-assessment tax bill is usually due by midnight on 31 January and 31 July, meaning any tax you owe from the previous year – as well as your first payment on account for the new tax year – is due
- Rather than make a payment in one lump sum, you may find it easier to pay weekly or monthly through a budget plan
- The government website also has a tool to check which payment plan is right for you
Check what benefits you may be entitled to
- You can check what benefits may be available to you by using our specialist calculator
- Before you start, make sure you have to hand information about your savings, income, pensions and existing benefits (for yourself and your partner)
- It will take around ten minutes to complete and will provide you with a better understanding of your finances
If you can’t pay your tax bill on time – what to do
If you’re worried you won’t be able to pay your tax bill on time, follow these steps so you know exactly what to do:
- Contact HMRC as soon as possible if you’ve missed a tax deadline or know you won’t be able to pay a tax bill on time. HMRC will discuss with you what support is available and may suggest you pay what you owe in instalments (this is known as a ‘Time to Pay’ arrangement). Find out more here.
- If you’re able to pay your tax bill in full, you should do this as soon as possible to stop the risk of more penalty charges/interest being added to your tax bill. Penalties and interest will only be incurred if you pay late.
- If you don’t contact HMRC or refuse to pay, you will be contacted by letter, text or a home/work visit.
Government support (benefits)
Remember there are some other options out there to explore to see whether you could be entitled to more support.
First start by checking your benefits entitlement. This process will take roughly ten minutes and will ask for some information to work out what entitlements might be available to you. At the end, it’ll give you an overview of what these are – and what to do next.
We’ve also listed some specific benefits below so you can view details of these at a glance:
- Universal Credit is a monthly payment to help with your living costs. You may be able to get it if you’re on a low income, out of work or you can’t work.
- Most people can no longer make new claims for Working Tax Credit. If you’re already getting this, you might be able to carry on receiving Tax Credits if you become self-employed. You’ll need to let HMRC know you’ve become self-employed.
- If you’re already getting Child Tax Credit and start working, you might be able to claim Working Tax Credit.
Minimum Income Floor explained
If you’re self-employed and your earnings are low, your benefits may be worked out on higher earnings than you have (this is called the ‘Minimum Income Floor’). It’s set at the level of the National Minimum Wage at the number of hours you’d be expected to work. How many hours this is depends on your circumstances.
If you’re self-employed
Managing a variable income if you’re self-employed or running your own business
Consider putting a little bit of money away each month to save for your big tax bill – you can use the government’s tax calculator to estimate how much Income Tax and National Insurance you should pay for the current tax year
Budget for a variable income – a good tip is to budget for your lowest monthly income
Keep control of your cashflow – outstanding payments can have a severe impact on your cashflow:
- Be clear with your customers about payment terms before starting a job
- Ask for an upfront payment or deposit
- For larger jobs, consider asking your customer if you can bill them monthly rather than wait for larger payments once the work is complete
- Split your personal and business finances – this makes doing your self-assessment tax return easier
Expenses if you’re self-employed
There are a number of costs you can claim back in expenses. Be sure to keep records of all your business expenses as proof of your costs and keep your records accurate.
- If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses. Allowable expenses don’t include money taken from your business to pay for private purchases.
- If you run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax
- The government website breaks down a full list of allowable expenses. You can’t claim expenses if you use your £1,000 tax-free ‘trading allowance’
- If you work from home, you may be able to claim a proportion of your costs for heating, electricity, Council Tax, mortgage interest/rent and/or internet/telephone use. You’ll need to find a reasonable method of dividing your costs. You can avoid using complex calculations to work out your business expenses by using simplified expenses.
What can you claim on for your business?
Office, property and equipment
Items you’d normally use for less than two years are allowable expenses – such as stationery, rent, rates, power and insurance costs
For equipment used to run your business, for example, computers or printers, you can claim allowable expenses if you use cash-based accounting or capital allowances if you use traditional accounting.
Car, van and travel expenses
Vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle licence fees, breakdown cover, travel fares, hotel rooms and meals on overnight business trips are included as allowable expenses.
Uniforms, protective clothing needed for your work and costumes for actors/entertainers are included as allowable expenses.
Employee/staff salaries, bonuses, pensions, benefits, agency fees, subcontractors, Employer’s National Insurance and training courses related to your business are included as allowable expenses.
Goods for resale (stock), raw materials and direct costs from producing goods are included as allowable expenses.
Legal and financial costs
Accountancy, legal and other professional fees can count as allowable business expenses. You can claim costs for the hiring of accountants, solicitors, surveyors and architects for business reasons. You can also claim for professional indemnity insurance premiums.
Bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest, leasing payments and alternative finance payments.
Any insurance policy for your business, for example Public Liability Insurance.
If a customer doesn’t pay you
If you’re using traditional accounting, you can claim for amounts of money you include in your turnover but will not ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they won’t be recovered from your customer in the future.
Marketing, entertainment, subscriptions and training courses
You can claim the following:
Advertising in newspapers/directories, bulk mail advertising (mailshots), free samples and website costs.
Subscriptions for trade/professional journals and trade body/professional membership if it’s related to your business.
Business expenses for training that helps you improve the skills and knowledge you use for your business (note the training courses must be related to your business).
Remember we have a dedicated self-employed debt advice team.
If you’re struggling with debt repayments and need some more advice, get in touch for some extra support.
Please note BudgetSmart has been created to provide you with information but it’s important to always do your own research too. Whilst BudgetSmart contains links to third party websites we think you might find useful, PayPlan is not responsible for any external content or any actions you take when accessing these links/websites