Starting in self – employment….a “TO DO” checklist…..

When starting in self-employment there are many things to consider. Some of the most important things are detailed below in the checklist. Further information about each of these can be found below.

Registering for self-employment with HMRC
Registering for Class 2 National Insurance
Keeping suitable books and records
Getting organised!
Setting up a business bank account
Appoint an accountant
Make savings for your first personal tax bill
Consider income replacement insurance
Consider tax investigation insurance
Goal setting / planning ahead

 

 

Registering for self-employment

As a chiropractor starting a new business, you will need to register this change of status with the HM Revenue and Customs (the people who deal with tax and VAT).

This can be done by downloading the form CWF1 (please click for form)

THIS MUST BE DONE WITHIN 3 MONTHS OF STARTING SELF-EMPLOYMENT OR A PENALTY OF £100 WILL BE ISSUED BY THE H.M.R.C

For help and assistance with completing the form, please contact us and we would be happy to provide guidance.

 

Registering for Class 2 national insurance

 

When self-employed there will be changes to how your tax and national insurance are dealt with.

Class 2 national insurance must be paid if you are self-employed and over the age of 16, below state retirement pension age and have not been excepted from liability to pay.

Class 2 national insurance contributions give entitlement to a range of contributory benefits including incapacity, maternity allowance, basic state pension and bereavement benefits.

Class 2 national insurance can be paid by direct debit by completing FormCA5601 (click to download)

The information provided above has come from the Revenue & Customs website http://www.hmrc.gov.uk/nic/class2.htm

 

Keeping suitable books and records

 

When starting self employment you will need to keep books and records for a number of reasons:-

  • to pass to an accountant to prepare your financial accounts and tax return for the year
  • to keep for a minimum of 5 years after the filing date to satisfy H.M.R.C should they wish to investigate your past tax returns
  • to run your business in an organised and effective manner and provide you with valuable information

You can choose to keep manual records but electronic ones are preferred by most accountants firms to avoid duplication of work.


If you would like to speak with an advisor for some useful tips on how to maintain good books and records, please contact us.

 

Getting organised!

 

Important dates

There are lots of important dates to remember when you are self-employed and it may pay to do some research now so that important deadlines are not missed.

A few to start are:-

5th April         tax year end

31 January     tax payment due and first payment on account

”   ”           tax return due for filing

31 July           date of 2nd payment on account

Your accountant will also require your books and records sent to them in order to prepare your accounts (usually between May and October for 5 April year ends)

Your year end

An accountant can help you to establish what your business’s year end will be. It is a good idea to find this out sooner rather than later though as it will determine how you keep your books and records (see above). Most of our chiropractic clients who are self-employed operate using a 31st March / 5th April year end.

Setting up a business bank account

It is very important that now you are starting in business that you arrange to have a separate bank account for business income and expenses.

Having a separate bank account * will mean that it is easier to track business income and expenses than if it they are combined within your personal bank account. Also at the end of the financial year, your accountant will need to reconcile and agree the balance on your business bank to satisfy the Inland Revenue.

The above also applies to a business credit card *

* This does not have to be a business account / credit card, just a separate bank from your personal transactions.For more information, please contact us.

 

Appoint an accountant

 

Although appointing an accountant may seem like a cost you do not want to incur in your first year of business, your accountant will be not only be able to make an accurate calculation of your tax but they can also ensure that you are not missing out on valuable tax savings, often resulting in saving you money in the long run. Your accountant can explain the way in which the tax system for self-employment works, describe tax terms to avoid confusion, help determine your year end and answer any initial queries you may have. They can then be relied on to contact with questions throughout the year.

Kelsall Steele is a specialist accountancy firm for chiropractors who offer an excellent level of service. Included, as part of their annual fees is telephone and email support for accountancy and taxation queries, which is useful, particularly in the first year when new procedures need to be put into place.

We also have a specialist graduate package to ensure costs are low in your first year of business.Contact us for further details.

 

Make savings towards your first tax bill

 

Now that you are self-employed it is necessary to plan for future tax bills.

The first tax bill in particular can come as a shock to many self-employed chiropractors as not only may there be tax due on the first year’s profits but also payments on account towards the next year’s tax bill may be required from the Inland Revenue.

For example (based approximately on profits of £30,000):-

 

Tax & NI due on profits to 31/03/13£5,000
Payment on account (being 1/2 tax bill) £2,500
Total due by 31/01/14 £7,500

 

 

Payment on account (being 1/2 tax bill) due for payment 31/7/14 £2,500

 

Using the above example, you will pay 1 and 1/2 times your tax bill in January and another 1/2 in the following July.

This may seem unfair but the reason the Inland Revenue request this is that there is there is quite a considerable time for many self-employed people between the date they start self-employment and the date they pay tax.

For example:-

Start date of self-employment                 01/07/12

First year / period end                            31/03/13

First tax return and payment due             31/01/14

This example therefore demonstrates that there has been 19 months where the individual has not had to pay tax and class 4 national insurance so by making payments in advance towards the following year’s tax bill means that the payments are being adjusted back in line into the correct tax year.

Your accountant can suggest a suitable amount to save in preparation for these bills and explain this concept in more detail.

 

Consider income replacement insurance

 

As a business owner, have you considered what will happen if you were suddenly unable to work?

There are a wide range of covers and insurances to ensure you are paid an income whilst unable to work or paid to your family in the event of death.

Income protection / Permanent Health Insurance ensures that if unable to work for medical reasons, you will be paid an income through the insurance company (subject to terms)

Critical illness pays out a lump sum in the event that you are diagnosed with a critical illness (subject to terms)

Life cover pays out a lump sum in the event of death of the nominated individual. This can be used if you have financial dependents.

We recommend speaking to a financial advisor to discuss the best options for you as there are many options and insurances available. Contact US Today for a FREE QUOTE

 

Consider tax investigation insurance

 

Unfortunately, the Inland Revenue investigate a certain number of tax returns each year.  Some of these checks are based on the statistics of the returns filed and others are purely random checks.

Either way the accountancy costs of an investigation can amount to thousands so we recommend insuring yourself against these potential costs.

The insurance costs range depending on your status (usually between £150 and £350) but contact us for a free quote.

 

Goal Setting / Planning ahead

 

Even if you are starting in business as an associate and not in your own practice, it is still a good idea to have an idea of the targets you would like to reach in terms of income and net profit levels. Also if you have plans to set up your own clinic, it is useful to have an idea of when you would like to do this so that steps can be made to ensure that your plans are met. It is therefore a good idea to document your initial goals and ideas for expansion on a business plan. This plan may also evolve as your business does. We have some free business plan software which may be useful……contact us for more details…….

SUMMARY

If you have completed the above checklist you should be fairly set to embark on self-employment! Although you will find that many questions will arise and decisions will need to be made as you carry on through self-employment.

Should I now set up on my own rather than as an associate? Should I buy a clinic? Should I introduce my wife as a partner? Should I set up as a limited company? What happens if I take some time off work? I want to expand my business, where can I find finance? I am employing a new asssociate, where can I find a suitable contract? And many more questions…..

We are able to offer assistance and guidance on all areas of your business (subject to our terms).

For more information, please contact us:-

T: 01326 660020

E: support@finance4chiropractors.com