What does a devil need to know about tax?
If you are currently a devil, you might not be too concerned about setting up your accounts, but there are few things you can do that set up your new business now so you are ready for business on the date you call.? The Guardian article from September 2024 is a good summary of the general case for freelancers, but read on for more specific advice applicable to advocates.
Why should I bother thinking about tax now?
Procrastination might well be the thief of time, but when it comes to your accounts it is likely to cost you cash too.? There are a few tasks that you should complete before calling in June.? These steps can save you money and improve your cashflow.? In a year when you are not earning anything, any measure to receive cash earlier is surely a worthwhile benefit.
What if I’m not bothered about improving cashflow?
Even if you are happy to shell out cash during your devilling year, as busy as you are now, you will have less time to devote to accounting administration after you call.? In common with most professional services, pre-emptive action is better than retrospective correction.?
Following the advice below is much cheaper to do in advance of trading.? Once you are an advocate, it is more complicated to have to make these changes and the additional work required means that an accountant will charge you more.
Bank Account
Every year new advocates ignore advice to set up a separate bank account.? There are plenty of free business accounts from the ‘challenger banks’ at the moment e.g. Mettle, Starling so there really is no excuse not to have an account ready for your new business.? Although there is no legal requirement for a sole trader to have a business bank account, HMRC have the right to see all the transactions in accounts that you use for business, so it is best to keep things separate from the start.? Making Tax Digital (MTD) has already changed the way that VAT records are maintained.? MTD will also prompt the biggest change to income tax since self assessment was introduced when MTD for Income Tax becomes compulsory for taxpayers from 6th April 2026.
You are likely to buy items for practice in the months preceding your calling date e.g. computer, desk, wig, gown.? If these purchases are made from your new separate account it makes it much easier to keep track of them and if you follow the advice below, you can also reclaim VAT at the earliest opportunity.
VAT
There is no requirement to register for VAT unless your annual taxable turnover exceeds the VAT threshold (currently ￡90,000).? However considering the VAT that all advocates suffer (including computer equipment), it is advantageous for all devils to be VAT registered in advance of calling.
Be aware that the HMRC process for VAT registration can be very slow.? It is not unusual for VAT registration to take more than 6 months to complete.? If everything is working as it should, the whole process should take no more than a fortnight, but the HMRC official position is that they will give a decision within 40 working days.?
You can be registered as an intending trader, which will enable you to reclaim qualifying VAT on purchases while you are still devilling, but make sure you are properly supported as VAT is already part of MTD so your reporting obligations start immediately.
Self Assessment
You need to register as self employed with HMRC.? If you have not previously submitted tax returns, HMRC will issue you with a Unique Tax Reference (UTR).? Even if you have a UTR from previous taxable income e.g. as a partner or a previous self employment, you are still required to inform HMRC that you will be a sole trader from the date you are called.
If you have no former online account with HMRC, it can be frustrating to set up your application.? Despite paying tax as an employee, you can seem invisible to HMRC.? If it is more than 3 months since your last payslip or you don’t have a recent P60 form from your (former) employer, it can be difficult to verify your identity.
How we can help
Avatcode is set up to support advocates. The service provides cloud software to make your business work and help you with your accounting and tax needs. This includes: