FdA Digital Visualisation - Professional Practice (FDDV107)

Jago Silver

Self - Employment

You need to register with the Inland Revenue when you become self employed, you will
start paying Class 2 National Insurance immediately, even if you have no income (this is
currently £2.30/week).

Invoices

You will need to keep records of the amounts you are paid. I do this by printing out an
invoice for every payment (even if the client doesnʼt request/need one). The invoice lists
what the job was for and what I was paid, including any travel expenses for example.

Receipts

You will need to keep receipts for every business expense as evidence of how much it
cost. I write a number on each of mine that corresponds to the number in my accounts
spreadsheet.

Accounts

You need to keep accounts, so that you can calculate your profit and fill out a Self
Assessment Tax Return.

Accounts basically cover anything you earn and anything you spend that is directly related
to your business.

Expenses

You have to be able to justify your business expenses if you are inspected. The Inland
Revenue states that items that are listed as business expenses must be “wholly and
exclusively” for business purposes. This can obviously be complicated with items like
computers that have many uses.

I use a spreadsheet to keep this organised and have one sheet for income where I add
each job as it is paid (or invoiced) and another where I total up all my expenses.

Use of a home for business

You can also put down some bills as business expenses if you work from home. For
example, a proportion of phone and broadband costs could be counted as business
expenses. This can have complications though as the council may decide you should be
paying business rates....

Capital Expenses

These are large purchases or investments for your business that you canʼt claim like
normal expenses. You can claim a percentage of them each year though to spread the
cost, usually 25%, although it can be 40% in the first year of trading.

07/02/2008
FdA Digital Visualisation - Professional Practice (FDDV107) Jago Silver

Profit

The profit from a business is what you pay tax on. It is calculated by totaling up your
income for the year and subtracting all of your expenses.

For example, I you had received £25,000 of income and spent £5,000 on business
expenses, your profit would be £20,000.

Tax

Income Tax

You have a personal allowance, which is the amount of money you can earn before you
have to pay tax.

Personal allowance 2008-09

£5,435
Then you pay the following percentages on what is left:

Taxable Bands 2007-08

Allowances

Starting rate 10% £0 - £2,230

Basic rate 22% £2,231 - £34,600

Higher rate 40% over £34,600

For example, if your profit was £20,000, you would subtract your personal allowance
(£5,435), leaving you with £14,565. You would pay 10% starting rate on the first £2,230 of
this, which would be £223. Then you would pay 22% on the remaining £12,335, which
would be £2,713.70.

National Insurance

You also have an allowance for this of £5,225, so you pay 8% National Insurance on
anything remaining after subtracting this.

For example, if your profit was £20,000 you would subtract £5,225, leaving £14,775, which
you would then pay 8% of, £1,182.

So for a profit of £20,000 you would pay a combined total of £3,895.70 Tax and National
Insurance.

This would be split into two payments one in January and one in July.

I would recommend trying to set aside 30% of every payment you receive in a savings
account, to pay your tax bill.
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