Creating An Invoice: A Guide For Beginners

Invoicing is one of the most important aspects of running a successful business, yet it’s often the most overlooked. If you’re a sole trader who has recently opened a business or you plan on opening one in the near future, you may be wondering how to create an invoice.

This is a question that every business owner should ask themselves before providing goods and services. To help, we’ve put together this comprehensive beginner’s guide. It covers everything you need to include in a basic invoice, such as:

  • An invoice number
  • Dates
  • Payment terms
  • Your contact information
  • A description of the goods/services provided
  • A cost breakdown and total cost

Why your business should be using invoices

As you’re probably aware, an invoice is a legal document that’s used to record transactions between you (the seller) and your client (the buyer). While you’re not legally obliged to create an invoice unless you are VAT registered (we are dealing with non-vat registered business in this blog), it could help you out in difficult situations, such as when a client refuses to make a payment.

Touch wood this never happens, but if it does, certain invoices can be used as legal proof that the agreement was broken. Nowadays, there are thousands of free invoice templates for small businesses, so there’s really no reason not to start using invoices today.

What type of invoices your business should be using

There are several different types of invoices layouts that small businesses can send to their clients, though the type and style of invoice you should use will ultimately depend on your industry.

The most common type of invoice used by small businesses is widely known as a basic invoice. This type of invoice is suitable for almost every industry and includes the total price to be paid for goods or services supplied. It also typically contains details such as an invoice number and the contact information of both you and the client.

What you should include in a basic invoice

When designing an invoice for your small self-employed business, you can choose to make it as plain or as quirky as you would like. Having said that, there are specific ‘must-have’ details that you should include in every single invoice you create:

A unique invoice number

One of the most important pieces of information that you must include in every invoice you create is a unique invoice number. This number is used to easily track and file invoices, which is especially important if you ever need to send them to HMRC.

How you decide to number your invoice is ultimately up to you. While some sole traders choose to include specific reference numbers for each individual client, others simplify matters by numbering them in chronological order. However you decide to number your invoices, make sure that the unique invoice number is clear.

Relevant dates

Another important piece of information that should not be left off your invoice is the date you created it.

You may also want to include the supply date, which is essentially the date that you provided the goods or services. This is useful for both collections and your own personal accounts, as it’ll allow you to quickly refer back to previous invoices when necessary.

Payment terms

Before sending an invoice, you should have already agreed on payment terms with your client, but it’s always a good idea to note the terms on the invoice again. This will allow you to know exactly when you should be getting paid and to let your client know when they must pay you.

While ‘net 30’ is often included in the payment terms on an invoice (that is, you want to be paid within 30 days of the invoice date), your specific payment terms will differ depending on your industry and client relationship.

Your company’s name and contact information

Even if your client knows exactly who you are, there’s a strong chance that their accountant doesn’t. It’s therefore important to include your company name, address and contact information (such as an email address or phone number) on all of your invoices.

It’s recommended that you make your company name either large or bold so that it stands out at the top of your invoice, alternatively add your business logo. This will make it easier for both your client and their accountant (if applicable) to understand exactly who they need to pay.

Of course, you’ll also need to include the name of either the individual or company you’re billing, as well as their address and contact information.

A description of the goods or services

Every invoice you create should include a clear breakdown of the goods or services you intend to sell. This doesn’t need to be unnecessarily long – it simply needs to detail exactly what your customer needs to pay for. After all, if your client doesn’t know what they’re specifically being charged for, how do you expect them to pay for it?

Once you’ve included a short yet detailed description, you may choose to add the quantity of the products or the hours for the services provided.

The price of the goods or services

In addition to the quantity of each product or the service hours, you must include the cost per unit or your hourly rate for individual goods and services. If you don’t, you won’t be able to work out exactly how much you’re making and your client won’t know how much they owe.

Include the price of goods and services next to the quantity/hours. Then, work out the total amount owed. Put this total amount next to the unit price or hourly rate, and then tot up all the total amounts together for the full amount due.

The benefits of invoicing for small businesses

Time is an important asset to us all. But for small self-employed businesses, time is money.

You see, invoices are a great way to increase productivity and effectively manage your time by monitoring all of your payments. By adopting efficient online invoicing software, you’ll be able to free up time by creating and sending invoices in a matter of minutes.

GoSimpleTax provides the perfect invoice management software for small businesses: GoSimpleTax Invoicing.

Our billing solution is an easier way to record income and expenses. It can send a populated invoice to your clients if needed, and it then links seamlessly with our tax return tool. This way, you spend less time manually inputting your figures, and more time focusing on running your business.

Ready to get started? Sign up and discover the benefits! GoSimpleTax Invoicing is free to use until April 2021.

What is the income tax personal allowance for 2020?

WHAT IS A PERSONAL TAX ALLOWANCE?

Much to the disappointment of HMRC, every tax year most UK taxpayers are entitled to a UK personal allowance on their taxable income. To put it simply, most people can receive a certain amount of money before having to pay any income tax. This is what is known as a personal tax allowance.

If you’re struggling to get your head around personal tax allowances, GoSimpleTax is here to explain everything you need to know, simply and easily.

HOW MUCH IS THE STANDARD PERSONAL TAX ALLOWANCE?

The standard personal tax allowance amount is £12,500 for 2019/2020. Any income you earn after that will be taxable. The amount of tax you pay after your personal allowance is dependent on how much you earn during a tax year. For example, If your income is above £100,000, basic personal allowance is reduced by £1 for each £2 you earn over the £100,000 limit, irrespective of age.

Personal Allowance & Tax Thresholds

Personal Tax Allowance2018/20192019/2020
Tax-free personal allowance£11,850£12,500
Basic Tax Rate (20%)£1-£34,500 (after allowance)£1-£37,500 (after allowance)
Higher Tax Rate (40%)Income over £34,500Income over £37,500
Additional Tax Rate (45%)Income over £150,000Income over £150,000

If your tax affairs are a little more complex, for example, if you’re married or in a civil partnership and receive a marriage allowance, or for age-related or income-related reasons, then your personal allowance works a little differently. You could also receive tax-free allowances for:

  • your first £1,000 of income from self-employment
  • your first £1,000 of income from property you rent

HOW DO I GET MY PERSONAL ALLOWANCE?

Getting your personal allowance is simple. If you file a self-assessment tax return, you will automatically receive your tax-free personal allowance.

Is there an easier way to file?

If you need to file a tax return, GoSimpleTax is here to make things unbelievably simple. Forget about long-winded form-filling and unwelcome phone calls with HMRC. Simply enter the details of your income and expenses and we’ll create your tax return for you and submit it online directly to HMRC. 

Access GoSimpleTax and discover a new free way of filing your return (HMRC approved), know what expenses will help you lower your tax bill and keep all your records online, safe & sound. Ready to file with one click. Start your free trial today!

Do I need an accountant to do my tax return?

When you realise you have to submit a tax return, you’ll have a lot of questions. ‘When is it due?’ and ‘What do I include?’ will probably be on your list. The one at the very top of it will likely be, ‘Do I need an accountant for a watertight tax return?’.

Some people undertake the DIY method, but doing your taxes for the first time can be scary. Here, we take a look at the benefits and drawbacks of outsourcing this task to an accountant. With the advent of mobile tax software, you may want to avoid them altogether…

WHAT IS A TAX RETURN ACCOUNTANT?

An accountant does many tasks for the taxpayer, and the tax return is one of the biggest – they will file it for you on an annual basis. Other duties include:

  • Keeping on top of your books
  • Claiming expenses
  • Calculating the tax owed
  • Finding savings to reduce your tax liability

HOW MUCH DOES A TAX RETURN ACCOUNTANT COST?

As with any service, a low cost is unlikely to get you great value for money. How much you should pay for a tax return accountant will depend on the amount of work they do for you, but you can easily pay up to £500 for the service described above.

You might find that some quotes are fixed and offer you more services than you require. Additionally, the cost may differ according to the type of tax return you need, and there are specific requirements related to your circumstances too – a general self-employed tax return will be different to that of a sole trader who also has a job or rental income, for example.

DO I NEED AN ACCOUNTANT?

No – GoSimpleTax allows you to easily stay on top of your taxes without the use of an accountant. Our no-jargon tax return software helps you understand and learn how to do your own Self Assessment tax return in minutes, just like an expert.

GoSimpleTax keeps things super simple and enables you to discover tax savings you didn’t even know existed. Just ask Liam, one of our users – he was able to reduce his tax liability by claiming for homeworking costs.

Whether you have a good grasp on your tax savings or you’re clueless when it comes to tax, GoSimpleTax will make sense of everything for you. It means you’ll potentially save hundreds of pounds in accounting fees, whilst still fulfilling your tax obligations and maximising your take-home pay. 

SUBMIT YOUR SELF-EMPLOYED TAX RETURN WITH GOSIMPLETAX

Tax return software is about three things: accuracy, convenience, and zero confusion.

Our Self Assessment software gives you full visibility over your finances. You can see everything in real time and from any device, including your tax liability. It also provides you with tax-saving suggestions by revealing deductible items that will automatically save you money.

‘Do I need an accountant to do my tax return?’ Not with Self Assessment software. GoSimpleTax allows anyone to be a tax expert. Find out for yourself by signing up for our free trial. You can use it to start calculating your tax bill straight away – no credit card required.

Do I Have To Pay Tax As An Online Seller? Guidelines And Boundaries

HMRC believe that, while it is perfectly okay to sell online, individuals often breach boundaries where they are making what constitutes a ‘business profit’. In this case, they may owe tax on profit made through selling on sites like eBay or Depop – and HMRC expects you to disclose such information in your annual Self Assessment return.

Declaring extra income to HMRC can be frustrating if you aren’t confident where you stand. But attempting to operate as an online seller and covering up what could be defined as trade can be potentially devastating for your finances.

That’s why here we’ve provided guidance on paying taxes as an online seller.

Do I need to pay taxes if I’m on online seller?

In 2016, the Finance Act empowered HMRC with ‘snooping’ authority to compile information from internet selling sites on ‘self-employed’ individuals who aren’t declaring income. There are certain elements to online selling that the government considers before defining something as a trade. They are:

  • Intention to make a profit as opposed to selling for fun or raise small emergency funds
  • Repetition of similar transactions over a short period of time
  • Money is borrowed to buy an item intended for sale, only to be repaid once the transaction has cleared
  • Inability to prove the items sold gave you a ‘pride of possession’ before being listed
  • The item is sold at a fixed price in a similar fashion to retailers
  • Limited time between purchase and selling, bringing into question the ownership of the seller
  • Modification of items in order to sell them for a greater profit.

For those still asking, “do you have to pay taxes on an online business?”, yes – unless you feel that you aren’t necessarily breaching the above considerations.

How much can you sell on eBay before you have to pay taxes?

HMRC does not want to tax those just hoping to make a small amount on the side. In fact, in 2017, the government agreed to a trading allowance that gave sellers the freedom to earn up to £1,000 in sales without paying anything in tax. The aim was to simplify the tax system and to help the UK “become leaders in the digital and sharing economy”.

It’s not just Ebay sellers that need to be aware of the potential tax trap, Depop, for instance, is a fast-growing community of young sellers that are making a living out of second-hand fashion. There are entrepreneurs earning thousands on the platform, unaware that they may have to pay tax as a sole trader. Gumtree and Etsy sellers are similarly affected by taxes when you sell things online – all being recognised as platforms where sellers are able to evade paying tax, and are therefore in HMRC’s firing line.

What are the consequences of not disclosing online income?

In the more severe cases, online tax evasion could result in prison – as was the case with a user in 2014 who failed to declare their eBay income. As HMRC has the authority to access PayPal information and request extensive details from online auctioning sites, it’s unlikely that such schemes will remain hidden for the foreseeable future. In 2016, approximately 870,000 people failed to submit a Self Assessment return with some cases having noticeably small amounts of income from online sales. This resulted in huge fines for the sellers, with HMRC predicting an increase for years to come.

Thankfully, completing a Self Assessment tax return has never been so straightforward. With GoSimpleTax software, you can see clearly what you need to disclose and how to avoid HMRC penalties. Our online and telephone support can guide you through the Self Assessment process so that it is accurate and transparent.

Interested? Trial our 14-day demo to see how you can streamline your accounts.

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