What needs to be done to become self-employed?

Deciding to become self-employed is a big step; there are lots of things to think about and organise before you can get your new venture up and running. Being clear about what you need to do to become self-employed can make the process easier, leaving you with more time to devote to growing your fledging business. Here are the main requirements for anyone considering self-employment.

Type of Business Arrangement

Before you set up your own business, think about how you intend to trade. In legal terms, there are three ways to do this for self-employed people. The simplest form is as a sole trader, if you plan to work by yourself. If you intend to work with others, you could form a partnership. Alternatively, you may decide to operate as a limited company. A limited company has its own legal identity, and ownership is divided into shares. Seek advice to decide which legal arrangement best suits your type of business. If you use a trading name for your business, make sure there are no restrictions imposed on the name.

Register with HMRC

When you become self-employed, you will need to get in touch with HMRC. As well as getting advice from HMRC about any permits that you may require for your new start-up, you will need to register your new self-employed status with them. You can register online or over the phone, but you will need to let HMRC know during the first three months of trading.

Paying Tax

Being self-employed puts the onus on you to manage your own income tax and National Insurance contributions, which can be complex if you are new to this way of working. You can get lots of advice from HMRC, but it is also worthwhile using the services of an accountant, who can help when it comes to filling in self-assessment forms for tax purposes.

Paying VAT

You will also need to find out if your business is obliged to pay VAT. This is a type of tax on goods and services, and whether you will need to pay it depends on the type of business operation and how much income you generate. Currently, if your business has an annual turnover of £82,000 or more, you will need to be VAT-registered. Failure to do so, or not making the payments within 30 days, can result in a hefty fine.

Financial Incentives

When you register with HMRC, you may find that you are eligible to receive special tax reliefs and allowances, so it is always worth investigating what self-employed benefits are available for your new venture. This can be a financial lifeline for new businesses with limited funds. An accountant can also give you advice about ways to save money and how to effectively manage your self-employed finance, especially if you operate as a limited company.

Capital

Getting a new business off the ground can be costly, so make sure you have enough capital put aside to get the venture going. Set up a business bank account that is separate from your personal bank account. Not only does this look more professional, but it will help you manage your business finances better. Organise direct debits so you can pay bills, and prioritise which aspects of the business you will channel your available capital into. If you get your self-employed finance in good order from the start, it can make life much easier in the long run.

Record-Keeping

From day one, get into the habit of keeping accurate and up-to-date financial records. Have a financial record-keeping system in place that is clear and easy to manage. If you keep on top of the books, it makes it much simpler to organise your income and expenditure and allows you to take control of any financial changes you need to make. Crucially, having organised books also makes it easier to file tax and VAT returns, especially when deadlines loom.

Insurance

Find out what types of insurance your new business will need. In some cases, you will have legal obligations to have the right insurance in place, depending on the nature of your business, so make sure you know if this applies. If you employ more than one person, for instance, you’ll need to have employer’s liability insurance. Consider also getting public liability insurance, professional indemnity and contents and premises insurance.