The Mysterious world of Self-employment

Let The Pet Accountant make those first steps a little easier.

Making the decision to go self employed is not an easy one and one that will cause you sleepless nights. Questions going around in your mind of how do I pay myself? Will I make enough money to survive? How do I even run my own business? And then the dreaded thought of having to complete a tax return and thinking…what on earth can I claim for? Should I be a Sole Trader or Limited Company? This may seem daunting, however with the right help and support these are barriers that you can easily overcome. 

SOLE TRADER VS LIMITED COMPANY

Over the years of working with many Pet Professionals, the most common mistake is people jumping into one of the above without knowing how they operate. This is when errors are made and when you start receiving those dreaded brown envelopes through the door from HMRC. 

If you’re just starting out and have not run a business before then the most common and recommended route is registering yourself as a Sole Trader. The reason this is the most popular, is because it is very easy to set up (just type into google ‘register for self-assessment’) and it’s the one that comes with fewer rules and regulations. Once you have registered your business (which you must do within 90 days of trading) and you have your Unique Tax Reference number then you are good to go. Simple right?

With this type, you run your own business as an individual and it is not considered a separate legal entity. You can keep all the profits after you’ve paid tax on them and you are responsible for any losses the business makes. If you have another job, the profit or loss of your sole trader business is combined with this income. 

Advantages 

• Easy to set up 

• Accountancy fees are less 

• No legal requirement to have a separate business bank account 

• Easy to manage 

• One annual tax return   Disadvantages

• You are responsible for the losses/ debts

• This is not a separate legal entity, if someone was to take legal action against you, it would be against you as the individual not the business.

Now this is where is starts to get more complicated. A limited company as you will see is more complex and more time consuming and will cost you more in accountancy fees. 

A limited company is a separate legal entity to you as an individual. It must also file Accounts and a tax return and pay tax on the money it receives. This is different from a Sole Trader. The owners/shareholders are protected from the liabilities of the business. This is what makes it attractive to people when they are looking at the different options, and the rate of tax is slightly lower than that of a sole trader. However, this is now set to change as a result of the 2021 Budget. 

When choosing a name for a limited company you must get approval from Companies House to use that name. You must also set up a payroll if you are taking a wage from the business and you must legally have a business bank account. 

With a limited company you will have your own self-assessment return to complete in addition to the company’s filing responsibilities. 

Advantages 

·         Separate legal entity 

·         More tax efficient when you are making high profits 

·         May find it easier to secure funding 

·         Pension possibilities 

Disadvantages 

·         A longer and more complicated process due to more administration, on account
    of more business details and company accounts 

·         Higher accountancy fees 

·         Legal rules and obligations 

Hopefully you now have a better understanding of what is available to you and how they work. There is no right or wrong answer, so if you’re sitting there thinking you shouldn’t have done something then don’t panic. You have to go with what suits you and your situation, and if you’re unsure please speak to a professional, not Karen from Facebook.  

EXPENSES

Now onto my favourite topic of expenses. This is what I get asked the most about in my Facebook group (Accounting for Pet Professionals) and is probably the most confusing for new business owners. 

Starting your own Dog Grooming business is not cheap so you need to make the most out of your tax return and give as little away as possible. The way to do that is to make sure you are claiming for everything you can. Now this is not easy I know; you type into google ‘can I claim for…?’ and you get hundreds of different answers which is not overly helpful. There is also a lot of conflicting advice on social media when one person states you can claim for specific things then someone else comes along and states you can’t. 

This is where someone like me comes in, to help keep you on the right track. So, let’s get down to the nitty gritty of the most common expenses that you CAN claim for…telephone/internet, protective clothing, stationary, insurance, bank charges, accountancy fees, training courses, books/magazines, business subscriptions, software, consumables eg shampoos etc, equipment, blade sharpening, advertising, utilities, motor expenses (seek advice). This is just a short list of items that can be included. Make sure you keep a record of everything you purchase for the business and keep the receipts for a minimum of six years. 

How are you recording these….Excel spreadsheet? Good old-fashioned pen and paper? Or are you down with the kids and using accounting software? Having a good record keeping system in place will not only help keep you organised and get a gold star from your accountant but also help you keep track of how your business is performing. One final tip from me which will be discussed in more detail in the next article is around Making Tax Digital. This comes into action in 2023 where an accountancy software will need to be used, so keep this in mind.

If just reading this fills you with dread and you’re sat looking at the big pile of receipts and invoices on your dining room table, and you think you are paying too much tax then seek the help of a professional. Accountants aren’t as scary as you think, and we will save you time and money. 

Vicky
The Pet Accountant