One of the foremost advantages of being self-employed is the financial independence you’ll gain from making the switch. There’s no boss to report to, and you’ll have control over all the investments you make in your business, as well as all of the money you take out. With that said, it’s easy to lose track of your finances if you’re going it alone. Keeping your finances in order is easy, however, provided that you stick at least loosely to a few fundamental guidelines. Let’s discuss a few of them.
When you work for yourself, there’s no PAYE going out of your monthly pay packet. HMRC is trusting you to set aside enough money each year to meet your obligations, so be sure that you do.
When you come to file your taxes, you should ensure that you deduct all relevant expenses. This means keeping track of how much you’re spending throughout the year. Keep receipts whenever you fill up at the petrol station, or how much office supplies and stationery you’re purchasing for your business. The largest lump sums can come in the form of computer equipment, which, if you’re buying for business purposes, can be deducted from your tax obligations.
Maintain a Financial Buffer
Inevitably, when you’re running a small business, your income will fluctuate from month to month. It’s especially important that you maintain a small emergency fund to allow you to cope with the dips, which might mean controlling your spending when things are looking rosy. Ideally, you should be able to last for several months if your income were to dry up entirely. That way, you’ll be able to look for a fixed-income position if the business suddenly collapses.
If you’re in your twenties or thirties, it might be difficult to think about what your financial affairs are going to look like in another few decade’s time. And yet, think about it you must! Employers in the UK are obliged to provide and pay into a pension scheme for any eligible employees. But you don’t have that luxury. You are, however, entitled to certain perks for saving into your pension pot, including tax relief of up to £40,000.
If you leave all of this work until January every year, then you’ll likely spend hours getting everything up to speed – and probably stressing yourself out in the process. Then there’s the likelihood that you’ll make a mistake and have to pay extra to atone for it.
You can get around this problem by bringing in expert help in the form of an accountant. If your income is generous enough that you value your own time higher that of a skilled professional, the decision is an easy one.