If you are a registered self-employed artist or artworker in the UK, you’ll need to submit a tax return to HMRC before 31st Jan each year (online). Some people find this pretty stressful, but keeping your records up-to-date should make the whole process far easier.
As part of the Being Really Good At Being Self Employed series, here’s a tried and tested method I use for easily managing my accounts and prepping for my tax return.
This guide gives useful steps to easy record keeping to make it as stress-free as possible!
Skip to the Easy 6 Step Process – using FREE software and banking
What records do I need to keep for my tax return?
When you are Self Employed in the UK, you’ll need to keep clear records of:
- Your self-employed income
- Your self-employed expenses
- Any other income you receive from PAYE employment (and your P60)
- Any other income you receive from interest on savings
- Any payments you make into a pension / SIPP (Self-Invested Personal Pension)
- Proof of income (eg invoices / bank statements) & expenses (eg receipts / bank statements)
How do I track my income & expenses and keep clear records?
Your records can be simply made in pen & paper (writing down all details as you go = easy to lose!!), or by creating straightforward digital records (a document or spreadsheet = save these on a cloud service so you can find them again!) or via bookkeeping software (free or paid-for services).
You can use Cash Basis accounting (easy, straightforward & minimum learning-curve!) or Traditional Accounting (more complex, carrying over aspects of income or expenditure across different tax years & may need help from an accountant to get you started).
For most Self-Employed creative practitioners, Cash Basis accounting is the best type of accounting system to use.
If you are running more complex multi-year projects with large funding budgets attached, you’ll probably want to learn more about Traditional Accounting. But as this guide is for beginners, we’ll continue just with Cash Basis methods.
Basic tax record keeping for HMRC Self-Employed Sole Traders
Here’s my recommendations for an EASY & CHEAP way of getting set up for a low-stress way of keeping all your self-employed records (for Cash Basis accounting) so that you’re ready for your HMRC tax return, using FREE software and banking.
SETUP – One time actions…
Step 1
Open a new Personal Current Account with a bank (traditional or app banking are all fine) that you will use ONLY for your self-employed expenses.
You don’t need to get a ‘Business Account’ as a sole-trader (and these usually have additional fees attached), a personal account is fine. The main thing you want to achieve is keeping all your self-employed expenses transactions separate from your personal accounts, and have the ability to export statements as .CSV files.
You’ll need to fund this account with a small start-up budget to cover your initial expenses before you get paid for your first gig.
Step 2
Open a new Personal Savings Account with a bank (again traditional / app banking will all work) that you will use ONLY to receive your self-employed income.
You’ll use the income in this account to transfer money to yourself (ie pay yourself!), transfer money into your self-employed expenses account (to make sure you have money to pay for your expenses).
Remember to transfer out the money you need to save to cover your tax bill (into a separate high interest savings account or ‘savings pot’).
Step 3
Make a simple Income & Expenses spreadsheet in Google Drive (or similar online document provider).
This allows you to make a record of what income you’re expecting, gigs you have agreed (in future), and upcoming payments you’ll need to make (eg insurance / subscriptions etc).
You can make a copy of the example spreadsheet below by opening it in a new tab and choosing File > Make A Copy (and save it to your own Drive)
Step 4
Sign up for an account with a FREE Online Book-keeping service (eg Quickfile – see link below)
There are lots of different paid-for book-keeping services eg Xero, QuickBooks etc, but for the size of business you’ll be running, a free account with Quickfile or similar will be fine (and does pretty much all the same things!)
Step 5
Find a good method for digitising your receipts
Some bank accounts may allow you to do this in-app (by taking photos on your phone), or you might simply scan/photograph your reciepts & save them into a folder on cloud storage (eg Google Drive).
You need to keep hold of these digital copies of your receipts for up to 7 years (5 years after the 31st Jan deadline of the tax year they relate to), and you can ditch the paper receipts!
Step 6
Start a Tax Checklist document on Google Drive (or similar online document provider).
This is going to help you have a single easy-to-access place to keep all of the info you’ll need to complete your HMRC Self Employed Tax Return.
You can make a copy of the example Tax Checklist by opening it in a new tab and choosing File > Make A Copy (and save it to your own Drive)
ON-GOING – Making it all work!
When you agree to a gig / commission / work you will invoice for, make a note of this in the income tab of your Income & Expenses spreadsheet (under the month you’re likely to be paid in).
When you pay out for materials, studio costs or other allowable expenses related to your self employed work, use the card attached to your new Personal Current Account, and make a note in the expenses tab of your Income & Expenses spreadsheet.
Digitise your receipts (in-app or on cloud storage) and forget about these!
When you are ready to invoice the people who will be paying you, use your FREE Online Book-keeping service to generate an invoice, and have this paid into your new Personal Savings Account.
Once you have received the payment for your invoice, mark it as PAID on your Income & Expenses spreadsheet and in your FREE Online Book-keeping service.
If you are paid for any of your work via PAYE (rather than by invoice), make a digital copy of your payslip and save you P60 (end of year tax report).
You’ll need to record the PAYE reference number for the organisation you worked for, the total amount earned, and the total amount of tax paid via PAYE in your Tax Checklist document.
Every so often, download a bank statement from your new Personal Current Account as a .CSV file (most online banking will give you this option), and import it into your FREE Online Book-keeping service.
Tag the payments in their relevant categories (so that they show up as ‘Cost of Sales’ or Expenses).
This will allow you to run Profit & Loss reports to see an as-it-stands / up-to-date record of your income, expenditure and profits.
+
At the end of the tax year (eg 5 April), you’ll be able to use the records on your FREE Online Book-keeping service (or via your Income & Expenses spreadsheet) to work out the final figures you need to submit on your Tax Return.
- Your Total Income (Turnover) = add together all self-employed income (total of all invoices paid to you, recorded on your Online Book-keeping service)
- Your Total Expenses = add together all the payments made for Allowable Expenses (details from bank statements in your new Personal Current Account, added up using your Income & Expenses Spreadsheet and/or Online Book-keeping service)
- your Total Profit = Total Income minus your Total Expenses
- You’ll also use the records of any PAYE Income (for employed work) that you’ve recorded in your Tax Checklist document to add any details of PAYE work
And that’s it!! You low-stress accounts & tax return prep are DONE
Once you have all of these details (via the process above), actually completing your Tax Return online with HMRC will be pretty easy (and take you less than an hour!!!). The online form is very step-by-step, but some of the questions might be confusing if you’re unfamiliar with it.
TOP TIP: Buddy up with someone who has completed their own Self Assessment Tax Return online before, and see if they’d be up for sitting with you as you do your first Tax Return submission.
If you’d like to see an example of what it looks like on-screen to complete the online tax return, take a look at this video.
Here’s a link to download previous resources I have shared via Being Really Good At Being Self Employed workshops (with a similar easy to follow process)
Doing Your Tax Return (slides) – Rachel Dobbs
If you find these resources useful, let me know via Instagram – @RachelDobbs1. All of the resources I produce are available to download for FREE, but if you’d like to contribute to my future projects, say thank you or just do something nice for a fellow creative practitioner, feel free to donate by clicking the button below…