What you need to tell HMRC

What UK Virtual Assistants need to know about tax and National Insurance

When you decide that you’re going to become a Virtual Assistant and take over the Universe, one of the many, many things you’ll need to do is tell the Government you’re no longer working for The Man but for many men and women instead. The information below is based on current UK tax laws so make sure you’re up to date with what you need to do if you live outside of the UK.

When do I contact HMRC?

When you start earning income from freelance work even if you’re still being paid by your employer.

How do I register as a sole trader?

If you start working for yourself in the UK you need to let HMRC know your situation has changed so they can update their records. You do this by going online and completing this form. which registers you for sole trader status and National Insurance (NI) contributions. HMRC then send you your Unique taxpayer reference (UTR) within six weeks.

What’s the Unique Tax Reference for?

Your UTR is used to submit your personal tax return online. Once you get your UTR you can then sign up to register for HMRC online services which mean you can do your tax return online instead of completing a paper version, as well as seeing all the other useful info they have on their site for you.

* It can take a few weeks to get your UTR so never do this right at the end of January! Register as early as you can so you give yourself plenty of time to get your number and do your return before the January 31st online tax return deadline.

HMRC have some handy YouTube videos; here is one on how to complete your self-assessment tax return.

Current tax rates and allowances

How much Income Tax you pay in each tax year depends on:

  • How much of your income is above your Personal Allowance
  • How much of this falls within each tax band

Some income is tax-free.

The current Personal Allowance for 2019/20  is £12,500 which is the amount of income you can earn before you have to pay tax on it.

Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance and it’s smaller if your income is over £100,000.

Income Tax rates and bands (2019/20)

The table shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,500.

You can also see the rates and bands without the Personal Allowance. You don’t get a Personal Allowance on taxable income over £125,000.

Read more about tax rates and allowances on the HMRC website. Income bands are different in Scotland and you can find those bands here.

National Insurance contributions (NIC)

In addition to registering with HMRC for tax, self-employed people pay one of two types of NIC:

  • Class 2 if your profits are £6,365 or more a year (you pay £3 per week)
  • Class 4 if your profits are £8,632 or more a year (you pay 9% on profits between £8,932 and £50,000 and 2% on profits over £50,000)

Some self-employed people don’t pay National Insurance through Self Assessment, but they may want to pay voluntary contributions. These people are:

  • Examiners, moderators, invigilators and people who set exam questions.
  • People who run businesses involving land or property.
  • Ministers of religion who don’t receive a salary or stipend.
  • People who make investments for themselves or others – but not as a business and without getting a fee or commission.

These people are probably not you, however!

National Insurance is charged in one go when you do your self-assessment tax return rather than taken monthly. Read more about National Insurance on the HMRC website.

What financial records should I keep?

It is a legal requirement in the UK to keep business records as evidence of what you’ve earned and what you’ve spent each tax year. HMRC could ask to look into your tax returns or claims and if they do they’ll want to look at your records of course. You must keep:

  • Cash books
  • Invoices
  • Mileage records
  • Bank statements
  • Receipts for business purchases
  • Your P60s if you’re also employed

Read more about what business records you need to keep on the HMRC website.

How should I keep them?

You should keep your records either on paper or on your computer. For electronic records you must:

  • Capture both sides of a document
  • Save all information in a readable format
  • Keep a back-up

Making Tax Digital

Under MTD, businesses will soon be able to send HMRC summaries of their income and expenditure at least four times a year and submit quarterly tax returns through an online accounting platform such as Xero, QuickBooks, Sage, FreeAgent, Zoho etc.

HMRC says this will enable a more ongoing and accurate projection of tax due, as opposed to the current system of one tax bill at the end of the year. It’s already in use for VAT-registered businesses and I personally think it’s a good idea because it will afford us a more accurate cash forecast

Although the UK government announced in July 2017 that Making Tax Digital will not be mandated for taxes other than VAT until at least April 2020, it’s worth knowing what it is so you’re prepared.

You can read an overview of Making Tax Digital here.

What happens if I lose an expense receipt?

If you don’t have a receipt for a cash expense then just make a brief note of the amount you spent, when you bought, and what it was for.

How long do I need to keep financial records for?

You need to keep business records for at least five years after the 31st January submission deadline of the relevant tax year. So best to keep them for six I say!

How do I complete my tax return?

The UK financial year runs from 6th April to the 5th April and HMRC will contact you to request you submit your return form by the end of October by post or by the end of January online.

There’s a £100 fine if you submit your tax return up to 3 months after the 31st Jan deadline and more if it’s later than that.

You always submit information for the tax year just gone – so in October 2019 (if doing a paper return) or January 2020 (if doing an online return) you’re submitting financial information for the period April 6th 2018 until April 5th 2019.

You have to pay ahead

You may not be aware of this, but you also have to pay a percentage of the next year’s tax and National Insurance in advance. So this is in addition to the tax you’re paying for the previous tax year.

HMRC take one payment by the end of January and another one in July. This is called ‘Payment on Account’ and you can read the exact specifics here.

Key dates And deadlines

  • The UK tax year runs from the 6th April to 5th April so your accounts need to be calculated from and to these dates.
  • 6th April is when you can start submitting your next tax return if you like.
  • 30th October is the deadline for paying your Class 2 NIC (National Insurance Contributions).
  • 31st October is the deadline for paper filing of tax returns.
  • 30th December is the date that if you’re also employed, you can choose to pay any tax due through your PAYE code instead of making a big payment on 31st January. (But only if you submit your tax return before 30th December.)
  • 31st January is the deadline for filing your online self-assessment tax return. It’s also the deadline for paying any income tax due, Class 4 NIC and your first payment on account for next year.
  • 31st July is the due date of your second payment on account.

Summary

UK tax laws are a complete ball ache and things like personal allowances and NI rates usually change each financial year. I’m afraid you do need to make sure you stay on top of this stuff because HMRC are serious folk and they do not take ignorance as an excuse.

You should always check with HMRC if there’s anything you’re not sure about – or pay an accountant to make sure you’re compliant. HMRC have an online chat service and loads of training videos to help you.

Where can I find out more?

* This page was last updated on 6th April 2019.

16 Comments

Charlene

Hi,

At what stage do I register my company? Straightaway or once I have my first client?

Reply
Joanne Munro

Hi Charlene, in the UK you only need to register a company if you are a Limited Company and you do this with Companies House. If you are just a Sole Trader (most freelancers are), you only need to register for Self Assessment once you start earning money. All the links are in the post and your first port of call should be the HMRC website. They have some great articles and are really helpful.

Reply
Alex Windsor

Hi Jo
I’m sure I’ve seen somewhere on your website an outline of how you keep your accounts but I can’t find it. Would you be able to point me in the right direction, please?
Many thanks
Alex

Reply
Lauren

Hi!

Loving your site, it’s full of useful tips!

I am a contractor (in project management as a PMO) and looking to become a VA – I already have a limited company, so could I just use this instead of becoming a sole trader?

Reply
Joanne Munro

You can indeed. I would speak to an Accountant though as you may need to inform HMRC that the nature of your business has changed.

Reply
Murray Baxter

Hi
Looking to start work in the virtual world. Would I still be able to claim for the purchase of a vehicle, even though I work at home? I know I can say I am out buying replacement paperclips, or visiting potential clients even, but would HMRC stand for this?
Thanks
Murray

Reply
Joanne Munro

I don’t think so but I WISH it was so! It has to be something you ONLY use and need for work. I would ask HMRC directly as I’m not an expert in this I’m afraid. x

Reply
Isa

Hello!
I would like to approach the world of VA and become one.
At the beginning I want also to keep my pwrt time employment, you know, just to not have too much pressure.
Do you think it’s possible to have both employed and self-employed works? And if so, how can I work out taxes and NI?

Thank you for your help.
Isa

Reply
Joanne Munro

Hi Isa, if you’re in the UK, you need to tell HMRC as soon as you start earning any money. You will do an annual online Self Assessment (you need to get your Unique Tax Reference first) and when it comes to the bit about earnings you complete how much you made as a Freelancer as well as your employment status. You can find details online by doing a Google search.

Although I know a little about this (I completed my first self assessment this way) I am not a legal expert and you should always take expert advice in all financial matters. My advice is to call HMRC and ask them what you need to do. They have an online chat service here. x

Reply
Kate Baldwin

P.s. Just to clarify, the “company” is a UK Virtual PA company, so they have the client base etc, and there is “virtual” office here where most of the PA’s work from in order to share tips and talk things through if needed. So it is a company, rather than setting up my own. It’s not totally home based, which for me is better. Thank you!

Reply
Joanne Munro

Hi Kate, I’ll be honest in that I have absolutely NO idea! I don’t want to give you false information so I would recommend asking on the VA Handbookers Facebook group as well as checking with HMRC (or equivalent) etc.

I think if you’re working Digital Nomad style then you pay tax in whichever country you’re registered in but I would always check anything legal with a financial and/or legal professional to cover yourself.

There are a few VAs who live and work abroad in the Facebook group and I actually did a VA interview with one who travels pretty much constantly so she might be a good person to ask too. x

https://www.thevahandbook.com/michelle-rodgaard-jessens-va-story/

Reply
Kate Baldwin

Hi, I have found your website incredibly helpful. Thank you. I have worked across Europe and recently moved back from working in Singapore. I am now based in Cape Town and want to work as a Virtual EA. There is a company that is based in the UK but operates out of Cape Town (far cheaper which can of course be passed on to clients, plus only 1 hour time difference from the UK). However I’m unsure as to the tax/legal situation of being on a UK contract, but working out of a different country. Any suggestions or guidance? Thank you so much! Kate

Reply
Gemma Lloyd

I am looking to become a VA and have been researching how I can set myself up. I am currently living in France, as we moved here 18months ago with my husband’s work and will be returning to the UK in the future. Can I set up a UK business when I am not living in the UK? And do you think this would limit my success as I will find it hard to meet with clients face to face and be out of the country ?

Reply
Joanne Munro

Hi Gemma, I don’t actually know the answer to the first part f that question but HMRC or one of the VA’s on one of the VA LinkedIn groups might be able to help. With regards to meeting clients whilst out of the country, that is what Skype or Google Hangouts is great for.

I have a client who lives in France who I do events with and he does all of his work with Skype and Hangouts. He lives in the middle of nowhere and says his Internet connection is far quicker and stronger there than here. He does come to the UK now and again to meet clients and just puts the trip on his expenses – the great thing about France is that they’re an hour ahead, so when you come to the UK you arrive pretty much the same time you left!

I have clients I’ve never met and the whole point of being virtual is so you can work from anywhere in the world. I often work from a holiday destination and my clients have no idea where I am – nor do they care as long as I get their work done on time. If you have a reliable way of communicating then you can be wherever you like! x

Reply

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