There are many changes going on in the world right now, it can be a great time to make a few adjustments of your own. It could even be the catalyst for you to start a new business and go self -employed. In the UK, just above five million workers in the UK were in self-employment by the end of 2019 and that is set to increase. There are many advantages to self-employment including creative freedom, flexible hours, independence and being able to choose your own work location or choosing to work from home. For parents, it can mean being able to fir your work around your life.
There are also some considerations to be aware of, starting a new business can mean long hours for less pay at the beginning. It’s a dream for many to become self-employed but it’s important to be a realist and remember the practical side too. Here are five things that you need to consider before becoming self-employed:
Register as Self Employed with HMRC
When you decide to become self-employed you need to register as self employed by 5th October in your business’s second tax year. If you don’t register, you could be fined.
When you register, HM Revenue and Customs (HMRC) will:
- send you a letter with your 10-digit Unique Taxpayer Reference (UTR)
- set up your account for the Self Assessment online service
When I first decided to go self-employed after redundancy, I went on a Beginner’s Guide to Self Assessment course ran by my local Tax Office. Nowadays, they run lots of online courses that you can do from the comfort of your own home or new business office. It teaches you everything you need to know.
Remember to think about how much money you will need to set aside for tax, depending on your income and tax allowance. I always think it’s better to put away more rather than less as it – just think of it as savings for the future!
National Insurance Contributions
Remember you will have to make your own National Insurance Contributions too. Most self-employed people pay National Insurance through their annual Self Assessment tax return. You pay Class 2 NICs if your profits are £6,475 or more a year, and Class 4 NICs if your profits are £9,501 or more a year. Find information on the rates here: https://www.gov.uk/self-employed-national-insurance-rates
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 HMRC happy, but you’ll find it so much easier to operate your business if you are organised and your paperwork is constantly updated. This will also help you to set goals for the future and give you an idea of future expected profits which will be a great asset for your business plan.
2. Register for VAT if Needed
You must register for VAT if your VAT taxable turnover goes over £85,000 (the ‘threshold’), or you know that it will. Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
You can also register voluntarily which means your business will able to reclaim the VAT on purchases made by your business, but remember this means you need to keep on top of VAT-related responsibilities. The UK’s Companies House requires all limited companies, be it trade or otherwise, to submit annual accounts and a confirmation statement. This also applies even if your business is a dormant company.
3. Open a Business Account
While it’s not compulsory to have a business bank account if you’re a sole trader, it is advisable. If you’ve set up a limited company it is mandatory to have a dedicated bank account for your business, as your business is legally a separate entity.
The two advantages of having a business bank account are that it keeps your business finances separate from personal affairs and it makes your business look more professional. Some high street banks offer 12-18 months of free business banking for new businesses.
If you plan to hold cash for some time, you should also open a business deposit account to get a little (very little at the moment with current low rates) interest on your money.
In addition to a Business Bank Account, decide whether you need to invest in other business accounts such as business broadband. While it’s possible to work from home on your domestic contract, a business broadband deal will generally guarantee to get you back up and running within a shorter time than residential agreements, minimising your downtime, so if your income relays on you being online it’s certainly worth considering.
Another issue to consider when setting up a business or going self-employed is insurance. Firstly. it’s important that you have business insurance. If you run a business, you are required by law to have certain insurance policies in place. For example, if you employ another person, even if it is only an occasional part-timer, you are legally required to take out employers liability insurance. If customers visit you on your premises or if you do work on their property, you should take out public liability insurance. It will protect you if a third party injures themselves, or damage is caused to the property because of your business activities. You might also want to have the reassurance that some other optional insurance cover gives you. In some lines of work, clients will only work with you once shown proof of insurance.
When you’re self-employed, you don’t automatically have the protection that an employer may provide so you need to plan for what happens in the event you can’t work and earn money etc. It’s important to consider income protection, this pays out a percentage of your salary if you’re signed off of work through illness or injury (usually 50-70%, depending on the amount you choose when you buy it, but some policies do payout 100%). It’s one of the least bought types of protection in the U.K, despite being a perfect choice for literally anyone earning – whether they’re self-employed or work for someone else, have a family or live alone. We all know the worry we feel about not being able to provide for ourselves and our families. When we know our wages are protected, the worry is less.
5. A Healthy Work/Life Balance