In the UK, anyone who earns more than £1000 from self-employed work in a year has to do a tax return. It doesn’t matter if you’re a full-time freelancer or run a few ‘side hustles’ using platforms like Shepper – doing a tax return is non-negotiable as soon as you hit that £1K mark.
The good news is, tax returns don’t have to be a nightmare. Not if you have a good year-round strategy in place, anyway.
The key is to record your self-employed income, and any business expenses associated with your self-employed work, as you go. (There are plenty of great tools available to help you with this.)
While it can be so tempting to leave thinking about this stuff until you absolutely have to, you’ll probably end up paying for it later down the line. Here’s why keeping on top of things throughout the year makes so much more sense:
You’ll feel more in control of your finances
Tracking your self-employed income and expenses through the year gives you way better visibility over your finances.
It means you’ll have a clearer idea of what your total income looks like, and how much tax you’re likely to owe. All of this can go a long way towards helping you plan those bigger purchases, without feeling stressed or confused about what you can afford.
This is particularly true if you have lots of different sources of income. Say, you work a full time job but have several freelance gigs on the side. Or are retired and earn from a mix of property lets, assets and side-jobs using a platform like Shepper.
Having a more complex income situation is all the more reason to keep an eye on your earnings and business expenses in real-time. Otherwise you might over or even under-spend on the things that matter to you.
Your tax return will be much quicker and easier
Even if you don’t earn loads through self-employed work, tax returns can get pretty long winded if you’ve not kept an eye on your finances through the year.
The process of going through 12 months’ of accounts is something nobody looks forward to, whatever the nature of their work.
Keeping track of what you earn and what you spend for your self-employed business as you go pretty much eradicates this pain-point. Instead of taking hours (days?!) your tax return will probably end up taking minutes.
You can use the time saved to make sure you’ve properly optimised your return. For example, to find business expenses you can claim that you might otherwise have missed.
You can easily file your tax return earlier, and get better access to money services
If you track your income and expenses in real-time, you’ll be equipped to easily file your tax return as soon as the financial year ends.
This can be really helpful if you want to get access to money services, like mortgages and loans, because it gives you proof of earnings.
You’ll be less likely to make mistakes on your tax return
When you’re trying to go through a year’s worth of accounts in one go, mistakes can (and probably will) happen.
Say you regularly buy produce for your side-hustle food business. Keeping track of these expenses throughout the year means you can be confident the data is accurate. (Receipts and transactions will inevitably get lost if you try to tackle things in one go).
Or if you regularly earn using platforms like Shepper, recording all your earnings as you go will make mistakes so much less likely than if you were to try to round them up in one sitting. You can also see your payment history using Shepper’s Wallet feature in the app.
From overstating your income to missing off expenses, tax return mistakes can lead to an admin nightmare later down the line. And they can cost you money, too – which leads us onto our next point:
You’ll be less likely to pay more tax than you need to
If you accidentally miss off business expenses when you do your tax return, that technically means you’ll be paying more tax than you need to.
Even with the best will in the world, trying to locate and add up a year’s worth of business expense transactions can easily lead to expenses being missed. And that’s not to mention the nightmare of trying to find old receipts, which are often needed for your tax return.
Keeping track of everything you spend for your business through the year is the best way to avoid the common pitfall of overpaying tax.
Earning money through self-employed work offers tons of perks and flexibility. And the fact that it comes with a bit of extra financial admin shouldn’t be a put-off. Spending just a few minutes a week keeping an eye on your income and expenses can make a huge difference – meaning that tax returns don’t have to be a source of dread.
We’d recommend using a tax management app like Finmo, which gives you a full view of all your bank transactions so you can tag them as ‘business’ or ‘personal’ in a couple of clicks. It also lets you manage income from multiple sources, which can be really useful if you have lots of different ways of earning. With just a bit of organisation through the year, you’ll reap the rewards of stress-free tax management, and ultimately, of having better control over your money.