How do you go about yours?

At the moment, I'm keeping track of incomings and outgoings. I've not yet had to fill in a "tax return", as have only just started.

I'm keeping all receipts for music books etc that I'm buying. I teach from home, and am a bit lost as to what I can claim for in respect of household bills etc?

Basically, i'm just a bit dim when it comes to accounts, and would love to hear how you all manage yours.

I don't give pupils a receipt for what they pay me, and they "pay as they go" after each lesson (though as I'm comtemplating doing it "seriously", I will be introducing T&C's and considering charging monthly in advance) - do I need to be giving receipts and keeping copies for account purposes?

At the moment, teaching is a "spare time" thing on top of working full-time, although I'm on the verge of cutting my full-time hours as I'm increasing in pupil numbers. Am just a bit nervous about taking that step!

Do keep receipts and bills. Do keep records.
It is not necessary to give a receipt to each student each time but you must keep good records, excel or a notebook is good enough so long as you have the date, the amount and the person who has paid you.
Do tell the Revenue tomorrow morning that you are trading. If you don't tell them within 3 months of commencement you are liable to a £100 penalty. This may be waived by the Revenue if you don't comply, or it may not, why risk it.
You can claim for lots of things including part of the costs of running your home, and any costs you incur as a musician that are wholly and exclusively for the purpose of your business.
Just ask.
I ask theory questions here and feel it fair exchange to answer tax questions.
Dora

Try keeping a payment record card or sheet for each individual pupil. Have a line or section for each payment week or month, enter absences and agreed holidays. This way if there are any questions you can show whoever is involved without giving away info about other pupils. Do register as a sole trader, inform the tax office, and register for NI. You may not be eligible to pay tax or NI, but they must be informed. They will usually give you good guidance about what you need to do and by which dates.

Keep your music tuition and related expenses separate from household bills. Do get public liability insurance, EPTA/ISM and NFU mutual are good here, for advice and policies. You will not be covered for home working by many insurers, so do check you are not being sold unnecessary policies, whilst leaving yourself uncovered. Music, repairs to instruments, maintenance, costs involved in your professional development are all legitimate expenses. But do get advice, again professional musician associations are good sources of information.

Good luck!

I have opened a second personal bank account into which I put my income from giving lessons. My number of pupils has increased recently and we decided (OH is accountant) that it would be sensible and easiest just to corral the income in one place.

I also had to register as Dora described with the inland revenue and although I have been working for a number of years they were ok about it.

I've found the Inland Revenue very helpful in all my dealings with them so far (touch wood) but the NI people were a different matter. I became self-employed in Sept 2007 and didn't realise I had to register with the NI dept at first, and so was a bit over the 3 month limit (Jan 08) by the time I rang them. I got a verbal rap over the knuckles by a right snotty-sounding little upstart, who menacingly told me I might get fined £100, and demanded to know the exact date I started teaching privately. The conversation continued something like this:

Me: Well, I've been self-employed since Sept 07, although I had one pupil since Oct 06......

NI Upstart: So, you were self-employed since Oct 06, then?

Me: No, I was employed by Bogshire Music Service until July 07, I had only 1 private pupil, who paid me a total of £208 for 16 lessons ....

NI Upstart: Well, in that case you WERE self-employed, and should have registered with us in Oct 06. By the way, what was the date of the first lesson?

Me: ...er, late October, I...

NI Upstart:...the EXACT date!!!

Me: .... (consults diary for that year) .... the 20th

NI Upstart: Right, so you were self-employed from Oct 20th 2006

Honestly, he made me feel like some sort of criminal being cross-examined in court. I wouldn't have minded if I'd been trying to evade paying tax, but I had every intention of declaring the princely sum on my tax return. The upshot of all this was that I was sent a NI bill for arrears dating back to 20/10/06 ......... but managed to get a certificate of exemption due to the fact that my earnings were too low! And, to cap it all, when I rang the tax people (as I wasn't sure how or where on the tax form to declare the £208) the very nice, civil, respectful-sounding young lady told me I could simply put it down in the section marked 'any other taxable income or benefit'!

So, to anyone just starting out as self-employed, please register asap with the Inland Revenue AND NI !!!

Allegra

I have been stubling through all this since September 2008, because I had no clue I was even self-employed until January 2009 and then I registered with NI and Inland Revenue (yes, way too late, but they were kind on me!) and since then have been trying to decipher everything without much help.

Anyway - what I do now is:

• Have a receipt book (just a basic little one from Rymans) where each lesson taught I enter the date, name of student, whether they paid and how much. This way, each lesson has a number and I can keep track of who paid, when and how much, which also helps me with accounts and, as I get council tax help, gives me something to show them as a record of income.
  
• Keep an A5 notebook (bright yellow and hardback so I don't lose it!) into which I staple all my relevant receipts for expenditure. Each day has a separate page, with however many receipts I had that day on it (I guess you could have 1 receipt per page, but I find this works). This is so that I have them all in one place and don't lose them by leaving them loose. As they are pretty much in chronological order, it will also - hopefully! - make it easier when it comes to the tax returns.
  
• I've also just started keeping a basic 'loss and profit' spreadsheet on excel. I simply have a column for income and categories of expenditure (stationary, publications, travel ...) and then a column for how much, then I total it up at the bottom. This is because I am bad at maths - which doesn't help my accounting - and a friend suggested it would be useful.
  
• I opened a business bank account with the same bank that my current account is with, but as a completely separate account. This is so that I could put my earnings into my business account when I receive them, and then pay them at the end of the week in one lump sum into my current account with the reference "Wages", so that it is very clear what my earnings are. (Having them both with the same bank means that the transfers get credited immediately.)
  
• As I teach privately and for a music school, I need to invoice them for my pay at the end of every month. I have a clearly marked folder which I keep printed copies of all these invoices in. I write "PAID" and then the date I was paid the amount on the invoice, then file them away.

I hope this helps. It is kind of complicated at first, but once you settle into a routine and have things in place that you get used to doing regularly, then it becomes much simpler. I think its important to keep everything clear and simple, so that should you ever need to officially demonstrate something to do with your earning, expenditure or business to be checked, it should be easy and there should be minimal problems in doing so.

Good Luck!
x

........... on a slightly more helpful note than last night (sorry about my rant!) .... the tax office suggested I attend a workshop for people staring up a 'small business', which I did, and found very helpful (if I'd known about it sooner I could have saved myself a lot of stress!).

These free half-day workshops are organised by HMRC (details on their website) and take place at locations all around the country. The one I went to took place in my nearest town (7 miles away) and, although the others there (about half a dozen) were in completely different lines of 'business', the general information was applicable and relevant to anyone, and I was able to get some answers to a few more specific questions.

Good luck!

Allegra

PS Cadence - you sound very well-organised. I like your A5 notebook idea for receipts!

Yes I would recommend these too - very informative and practical.

I was issued with the dreaded £100 fine for not notifying NI bods about being self-employed. It was very official and came with pages of documentation. However, since I wasn't earning enough to pay NI, I appealed on those grounds. I had also informed the revenue people with approximate earnings and projections, so it was all pretty much on record. The procedure was, if my appeal was unsuccessful, I would have to attend a tribunal. I never heard back from, either to say, I did not have to pay £100 or to give me a tribunal date. I was not impressed, and just hoped that some letters had not gone AWOL. Subsequently, and a couple of tax returns later, I have now decided to take the plunge and start paying NI even though I'm still not earning enough to do so. And those NI people are rather nice after all, and spent quite sometime with me over the phone going over my variuos options. I was not advised to make an over payment for my pension, on the grounds that in 5 years time they could do a pension thingy and work it out then, probably with me not needing to make any contribution of significance. We'll see in 5 years' time, but they were helpful, eventually!!

just one tip:
if you can by any means afford the £2.xx a week NI, pay them, even if you qualify for the exemption certificate.

if you are exempt, you have a mere £10 a month more in the bank now, but those times will not be credited towards your pension, maternity allowances and any other benefits that are calculated on basis of your NICs (e.g. in case of incapacity).

i personally don't think that £10 a month are worth losing out on your pension entitlement, the money you might get as a young parent, if you fall seriously ill etc.

At the moment, I work full-time in the NHS - so pay full NI contributions (though am currently negotiating a cut in hours to enable me to spend more time doing what I enjoy most!!)

If i'm paying full NI contributions in my full-time job, do I need to pay more from my income from teaching?

I'm looking at cutting just 2.5hrs from my full-time job initially (so will be working 35 hours a week...but "saving" myself 6hrs in "time" because of re-jiggling things...)

Not sure if this affects any of the advice above?

The first time I worked for an employer as well as being self-employed, I had to pay NI contributions on both lots of income.

The second time, I was told (by the employer, not the NI people) that I didn't need to pay NI contributions on both lots of income.

I am hopelessly confused.

(Sorry, icklechick, I know this doesn't help you, but hopefully some nice forumite will step in and help both of us!)

I'm pretty sure the answer is yes. Sorry.
I'll check tomorrow, when I've finished marking 100 tax scripts and confirm or deny.
Dora

If you are employed you pay Class 1 National Insurance Contributions, where as if you are self employed you pay Class 2 and Class 4 National Insurance Contributions. If you are earning under £5075 you can apply for low earnings exemption from Class 2 NI, but if you are earning over that you have to pay it. If you are earning over £5715 you have to pay Class 4 NI which is 8% of your profits over £5715. They are different contributions to the Class 1 you pay through being an employee so you do have to pay them - even though it seems like you're paying twice.

Lucid

Sorry, but if you are fully paid up with your NHS job, you are protected by those NI payments and do not need to pay extra NI contributions. I have a gap of about 24 months, and was advised quite firmly that it was OK to wait for 5 years (I'm unlikely to get pregnant, trust me on that one) but if you are younger and do not have alternative work which includes NI payments, then yes, make sure you are covered. NI is different to tax. You have to pay tax on income over and above your personal allowance. NI is separate, and if you are working full time, or even part-time you might find that making additional NI payments are, in fact, not necessary. Everyone is different, so it is really worthwhile talking to those nice people at the NI office and really asking them what is best for you.

You're so right with this advice! When I reached 60 recently I was told that I was only entitled to a tiny pension (around 20p a week!!) because I didn't keep up my NI payments when I was bringing up my chidren, and then I lived abroad for a long time.

I often wonder why I was never warned how this would affect my pension situation. I just didn't think about it and realise now how naive I was.

Just spoken to very helpful person at the HMRC...

If self-employed as well as being an employee elsewhere, you are still liable for Class II NI contributions for your self-employed work BUT you can claim exemption if you earn less than £5,000 net profit from your self-employed work.

This won't affect benefits/pensions stuff because you are already paying full contributions in your employed line of work.

So yeah, glad I phoned him...he was very helpful and am now officially registered

Didn't the number of qualifying years reduce substantially in the last budget? I always thought that if you were entitled to the old Child Benefit (in my day it was paid weekly by payment book) then you were awarded credits to your NI account for pension purposes. It looks like it was your years abroad Jenny that affected your entitlement.

I'm only organised because I got myself into such a pickle of confusion that I had to straighten things out!

These workshops sound really good - I received a letter asking if I would want to go to one, but I couldn't make the date. There was another one as well, specifically related to tax and NI in relation to small businesses and how to go about making sure you do everything correctly.

Yes, this is how I understood it - if you were receiving Child Benefit, you were awarded Home Responsibilites Protection to safeguard your pension.

Yes, my OH made enquiries on my behalf (he's an accountant so I let him get on with it ) and although I've probably only worked for about 9 or 10 years full-time, I will have had about 20 years receiving Child Benefit, when my earnings haven't qualified for NI, and I should be entitled to full pension (unless they change the rules again before I become a silver surfer ).

As a result of the Pensions Act 2007, anyone (male or female) reaching State Pension age 'on or after 6 April 2010' will need only 30 qualifying years (as opposed to 39 for women, and 40-something ...44? ... 45? ....for men) to be eligible for a 'full basic state pension'. Another change is that HRP has now been replaced by 'a new weekly National Insurance credit for those caring for children up to the age of 12 and for those who spend at least 20 hours a week caring for severely disabled people'.

Sadly, as a self-employed person, you get the same maternity benefit as unemployed people - despite the fact that you have paid tax and N.I.

Sorry I've realised I misread the full time part in icklechick's post. For some reason I thought we were talking about part time employment where you don't technically pay enough Class 1 NI - which is the situation I'm in. If you are employed full time and are also self employed you can apply for Deferment of NI Contributions (but only if the combined earnings exceed the weekly upper earnings limit) - although according to the following link you would still need to pay 1% Class 1 NI on all earnings above the threshold from your deferred employment.

http://www.hmrc.gov.uk/nic/deferment.htm

I find the HMRC website is quite useful for finding this kind of information out, but also found when I needed to phone them to ask about low earnings exemption they were very helpful.

Lucid

... this needs to be looked at individually though and isn't a gnereal rule.