One of the main benefits of becoming self-employed is the ease with which you can start up and run your new business.
You can even become a sole trader (another term for self-employed) whilst working as an employee for someone else, enabling you to test the water to see if you’re suited to working for yourself.
Here are 5 things you need to do when you decide to go self-employed:
1. Register as self-employed with HMRC
Once you set up as a sole trader (or work as a partner in a partnership if there’s more than one of you), you will be responsible for paying your own income tax and National Insurance (NICs).
You must register as self-employed with HMRC within three months of starting trading, even if you already pay tax via the self-assessment process each year. You can register online or call HMRC on 0845 915 4515 if you’d prefer to speak to someone.
If you are unsure whether or not you need to register with HMRC, here is some help to establish whether you are employed or self-employed.
Once you start operating as self-employed, you will need to pay your own National Insurance contributions (NICs).
When you are self-employed you need to pay Class 2 NICs on your income – which is £2.75 a week for the 2014/15 tax year. If you make profits of less than £5,885 a year (2014/15 tax year), you will not have to make these NI contributions.
You will also need to pay Class 4 NICs. For the 2014/15 tax year this is 9% on any annual profits you make between £7,956 and £41,865, and 2% on any profits above £41,865.
2. Work out whether you need to register for VAT?
As of April 2014, if your business has an annual turnover of £81,000 or more, you must register for VAT.
At any stage of the business cycle, if you look like you’re going to hit this annual VAT threshold over the coming 12 months, you must also register. The threshold usually rises by a few thousand each year. Make sure you let HMRC know within 30 days, or risk paying a fine.
In many cases, you might decide to register for VAT even if you don’t need to. You may gain more credibility by having a VAT number, and you’ll be able to claim the VAT back on eligible purchases you make.
You might also consider the flat rate VAT scheme, which makes accounting for VAT much simpler. Your accountant will be able to advise you if you’d be better off on the Flat Rate or standard VAT scheme.
3. Get professional advice
Omni Chartered Accountants are here to give you all the advice and help you need to help you embark on your new journey; request a free of charge call back from our website or click here to find out more.
4. Get a business bank account
As a sole trader, although your business income will be taxed alongside your personal tax, it is vital to keep your business records and finances separate from your personal affairs.
For this reason, we recommend you open a separate business bank account. Shop around, as you can usually find deals offering you up to 24 months free business banking.
Typically, your new account will be “John Bloggs trading as, or T/A, your Business Name”. Once again, it looks more professional to have your business name on cheques and invoices.
If you’re likely to hold cash for some time, you should also open a business deposit account to get a little interest on your money, even if rates are still at historic lows.
5. Keep accurate and up-to-date financial records
To be a successful sole trader, you must keep on top of your books.
From the start, you are obliged to keep clear and accurate records of all your business transactions. Not only will this ensure that you keep the tax authorities happy, but you’ll find it so much easier to operate your business if you are organised and your paperwork is constantly updated. Check out online systems like cashflow, sage and Xero.
When the time comes to submit your VAT return (if you’re VAT registered), pass your accounts information to your accountant and complete your annual self-assessment tax return, you’ll be able to get these done quickly and efficiently – giving you more time to work on your new business.