So you’re thinking of giving up the day job to become self-employed?
It’s a big and scary decision, but one that will have you buzzing with excitement. You’ll be planning your logo and business stationery, mapping your website and dreaming up entertaining social media posts, but you also need to spend time on the structure of your business and knowing where to start in relation to accounts and tax can be daunting.
We’ve put together a step-by-step guide for those starting out as self-employed.
Step 1: What kind of business are you starting?
You are likely to be familiar with the terms ‘limited company’ and ‘sole trader’, but it’s important to know the difference and how it will affect your business structure.
Quite simply, a sole trader is a self-employed business owner who is the sole owner of the company. It’s a simpler way to start in business. You need to keep a record of your income and expenditure and at year-end you declare your profits and pay tax and NI to HMRC under self-assessment.
A limited company will be registered with its own legal identity, that is separate to you, the owner, and any other stakeholders. You can be the sole owner of a business and still register as a limited company, this offers advantages such as protecting your personal assets, but does require greater compliance in relation to your accounting and tax affairs.
Are you going self-employed, but still working for a company part-time?
It’s important to note that if you are registering as self-employed, but still working part-time for an employer, you will need to pay tax through both PAYE (the standard when in employment) and self-assessment.
Step 2: Registering your business
Registering as a sole trader
If you’re setting up as a sole trader, you will need to register for Self Assessment with HMRC and file your tax return. It’s best to do this as soon as you can, as fines can apply if you fail to register your business within its second tax year. You can register yourself online, or appoint an agent, such as a4c, to register on your behalf.
Registering as a limited company
Setting up a private limited company will require you to have the following:
- Your company name
- An address for the company
- At least one director
- Details of the company’s shares, shareholders and any people with significant control over your company
- A SIC code (determining what your business does)
- A dedicated business bank account
During the registration process, you will also need a legal statement, signed by all shareholders, that agrees to the formation of the business, as well as written rules of the company that have been agreed.
Step 3: Starting up your business
Once you’ve informed HMRC that you’re self-employed, we would recommend that you set up a business bank account to ensure you manage business assets separately from personal affairs. You’ll also need to start keeping a record of your business expenses, income, outgoings and therefore your profits.
Whilst some business owners are confident in managing this themselves, some do not feel they can manage this independently, whilst others simply may not have the time. We can help! We provide a range of accountancy services to help you focus on running your business, from the day to day accounting support to supporting you with tax.
Step 4: Growth and compliance
You might need to pay VAT
Depending on your annual turnover, you will also need to determine whether you need to register for VAT. The threshold for VAT is £85,000 so, if you think your turnover will exceed this you must register.
There can be benefits to registering for VAT before you reach the registration threshold, such as the ability to reclaim VAT you’ve paid on your purchases, it can also help your new business to appear more established and perhaps more professional.
Get it covered!
You may be required by law to have certain insurance policies in place as a business owner, but having insurance policies in place will also provide you with peace of mind that you and your business are protected against unexpected issues such as damage or accidents.
The ins and outs of going self-employed can be difficult to get to grips with. At accounting4contractors, we help a variety of business owners just like you. From starting out, to tax planning and helping with the recording of income and expenses.
If you’d like to speak with experts in all things accounting, tax and expenses, contact us today to see how we can help you establish your business.