Deciding to become self-employed is one of the biggest decisions to make. Some say it’s the best thing they’ve ever done. Others see it as an escape from the clutches of 9 to 5 employment.
There are requirements to meet before you become self-employed. While it is easy to make the decision, you have to make sure you let the tax authorities know. So, doing your homework before making the move is vital.
Here are a few tips to help you before you make the switch.
Inform HMRC that you’re self-employed
When you’re self-employed, registering with HMRC is the first step. Doing this means you will be paying the right tax and National Insurance, which differs from when you were employed by a company. You can register at any time up until October 5 of your business’s second tax year.
Each year, you must complete and file a self-assessment tax return. HMRC uses this return to calculate your correct tax bill. You will be able to offset any business expenses against your earnings, which reduces your final tax bill. For example, the cost
You will also be responsible for paying your own national insurance contributions (NICs). Again, HMRC’s online software will calculate this for you.
Do you need to pay VAT?
As of April 2018, any businesses with a turnover of more than £85,000 have to pay VAT. However, even if your turnover is unlikely to reach those heights, you can still register for VAT. Many sole traders do because it gives them more credibility and they can claim the VAT back on eligible purchases.
Find the right bank
You do not need to open a business bank account. But the amount of transactions can make it tricky to keep track on business and personal expenses. It is worth considering setting up a business bank account. There’s usually a small fee on these accounts, although some high street banks offer free banking for the first 12-18 months.
Insurance
When you launch a business, it’s a legal requirement to have certain insurance policies in place. This all depends on the type of business that you are and the industry that you’re working in. If you employ another person, you’ll legally have to take out employer’s liability insurance. Check what insurance you need as it will save being hit with problems later.
Keep account
It’s important to keep a record of all your income and expenditure from the date your business begins. You must keep receipts, too!
Much of the accounting software available now also works in conjunction with apps that allow you to photograph receipts that are then stored. It is a lot easier and within two years, even the self-employed need to be registered for online accounting. This is known as Making Tax Digital and will become a legal requirement.
You might be able to do your own tax submissions in the early days, but you may eventually need an accountant. You must record all your incomings and outgoings.
You can start by using a simple computer spreadsheet but there’s also basic free accounting software available. As your business grows, you can invest in better resources and also seek some professional advice.
If you are considering self-employment, then we maybe able to help you through the PEAT Project. You could access free support with this initiative, so contact us for details today.
