David Truman – Private Client Partner
As a pupil barrister, setting up as self-employed might seem like a daunting and complicated admin task, but getting your details and business processes set up early will pay dividends in the future.
We work with barristers across all stages of their career to support them with their personal and business finances. If you’re coming to the end of your first six and are self-employed, the following tips on how to set up as a self-employed barrister may be of use.
Setting up as a self-employed individual
The first thing to do is register yourself as self-employed with HMRC.
You will need to register for Class 2 National Insurance (NI) contributions and VAT (if Chambers have not already done this for you) by the start of your second six. You’ll need to register with HMRC as self-employed for self-assessment by the end of the October following your first year of trading.
Your tax returns will be due by 31 January following the end of the tax year. Late filing penalties and late payment penalties can become due, so knowing the important dates and keeping track of them is very important.
HMRC’s Self-Employed Start-up Essentials
How to set up as a sole trader / self-employed.
How to check your self-employment status.
How to register and file your self assessment tax return with HMRC.
What is Class 2 National Insurance (NI)?
How to register for VAT.
Consider your cashflow
Whatever your employment status, cashflow remains one of the single biggest items to be aware of. Planning ahead for expected and regular expenditure means you can respond to unexpected or emergency situations that may require you divert cash.
For a self-employed barrister, we would recommend that you make efforts to set aside money to pay tax and student loans and make voluntary Class 2 NI payments to help qualify you for benefits (e.g. state pensions and allowances). You should try to get in to the habit of regularly reviewing the amount you have set aside so that you have enough to cover your tax liabilities as they become due.
Most income tax, NIC and student loan payments will be due on 31 July and/or 31 January, and we would expect your VAT to be due one month and 7 days after the end of each quarter.
Finally, we’d recommend that you open a separate business bank account so you can keep your personal and business expenditure separate.
As a self-employed individual, maintaining accurate and reliable records is essential. We would always recommend you use the appropriate software to manage and store your records of income and expenditure for up to six years.
When it comes to HMRC, you can never keep too many records and these can be invaluable in the run up to key tax dates such as self-assessment and VAT returns and, if HMRC do ask questions about your tax affairs, can be very helpful in getting any enquiries resolved quickly.
With this in mind we would recommend that you take note of HMRC’s Making Tax Digital (MTD) initiative. Launched in April 2019, MTD aims to improve the way in which businesses (including the self-employed) submit and pay their tax and VAT returns.
MTD will be mandatory for all self-employed barristers once their turnover exceeds £85,000 in a twelve-month rolling period, but we expect the threshold to be reduced in future years.
Online applications like Xero provide small businesses and the self-employed a means to manage all aspects of their business finances including digital receipt storage (scans or photographs) and fast submissions to HMRC thanks to seamless systems integrations. As a Xero Platinum Partner, Menzies are well aware of the capabilities that a platform like Xero could have for self-employed barristers and are able to offer you a discount on your Xero subscription if you subscribe through us. We’d love to talk and show you more!
Self-Employed Barrister Checklist
Menzies can help you with as much or as little as you need including self-assessment, VAT, Making Tax Digital, tax planning and financial planning.
In the meantime, we’d recommend if you’re coming to the end of your first six, make sure you have completed the following tasks:
- Registered with HMRC.
- Set up a separate business bank account.
- Set aside money to make the tax payment.
- Gather your information and prepare your accounts.
- Make sure you have arrangements for preparing and filing your tax return.
- Set aside the money to make all your tax payments on time.
For more information on setting up as a self-employed barrister or to talk through your options contact David Truman.