Becoming self-employed is a dream for most people as it represents freedom in terms of making a living, plus modern times have made this dream more accessible as it is relatively easy to start a new business.
Some people actually go into self-employment while they are still under contract with an employer.
There are a few considerations that need revision before going solo. We’ve include a few tips in order to make a good experience out of this life’s milestone of being your own boss.
. Register your new company with HMRC
After deciding that self/employment is where you want to be, and after having a clear picture of what your new business is about, you need to make it official by registering yourself as self-employed.
The HMRC handles this registration and it implies your sole responsibility to pay your own income tax and National Insurance. The registration must take place during your business second tax year and it also must be completed before October 5th that same year.
You must have a clear understanding of the tax year: A Tax year will always go from 6 April to 5 April of the following year meaning that if you initiate activities as self-employed in January, you should be registered with HMRC before October of that same year. This is because January would still be part of the previous tax year so October will happen during your second tax year.
. Income Tax and National Insurance Contributions
The self-employed are in charge of calculating his/her own taxes and to complete their own self-assessment tax return yearly.
Class 2 NICs
You’re also responsible for paying your own National Insurance Contributions, which for sole traders is known as Class 2 NICs which is £2.95 per week for the 2018/19 tax year. No Class 2 NI contributions are required from HMRC if earnings from your self-employed status are less than £6,205 for the 2018/19 tax year.
Class 4 NICs
This type of tax is also to be paid by the self-employed. It represents 9% of any annual profits made between £8,424 and £46,350 and 2% on any profits above £46,350.
. Find out if your business needs VAT registration or not
Registration for VAT is mandatory, as of April 2018, for businesses with an annual turnover of £85,000 or more. So if at any point of the business cycle you get the feeling that you’re about to hit the threshold during the following 12 months you should register. Thresholds usually increase each year so keep that in mind to avoid a fee from HMRC
. Open a business bank account
Sole traders often see their business income taxed along with their personal income, regardless of this, it is crucial for sole traders to keep both records separate from each other. The best way to achieve this is by opening a business bank account. Small business accounts have fees that range between £6-£10/month – plus a few transaction fees.
Explore your business and see how much banking needs can you perform online and find banking options that suit this particular requirement.
. Proper Insurance
Law requires a business to have some insurance policies, they vary depending on the nature of your business and its industry. Make sure that you explore all the law requirements so you don’t risk fines.
Also, explore if in the past you were a part of the PPI scandal and if you have got any unclaimed insurance. Many starting businesses look for ways to increase the core of their finances by injecting cash in them. An unclaimed PPI can be the perfect solution and you can quickly find if this applies to you.
. Keep your records updated and accurate.
You must be in total control of your books if you want to become a successful businessperson. It is also required by law that you do so so you don’t risk issues with tax authorities. Consider relying on third-party outsourcing companies who can handle your payroll and tax endeavours.
Starting your own business is definitely a life milestone that requires patience, dedication and an extreme sense of responsibility. Following these key steps will get you closer to your dreams seamlessly and within all law and tax authority requirements.