Tips for Becoming Self-Employed

14 Dec Tips for Becoming Self-Employed

Following on from our last post discussing the various merits of registering as a Sole Trader or a Limited Company, this month we take you through the first steps when you decide to go out on your own and become self-employed…

Becoming your own boss

For many, turning their back on 9-5 and becoming their own boss has long been what they have been dreaming of. Not only does it allow you to work in an industry you love, choose your own clients and also work the hours that suit you, not an employer. However,  be under no illusions; becoming self-employed is no picnic.

Knowing where to start, keeping on top of income, outgoings and managing your own tax can be an overwhelming prospect. That’s why we have created this article, helping you navigate the early stages of self-employment.

But don’t forget, going solo doesn’t mean you have to do everything alone! We are here to assist with everything you need from bookkeeping to submitting your annual returns.

Registering as self-employed

One of the first things you’ll need to do is to let HMRC know that from here on in, you’ll be paying your own Income Tax and National Insurance contributions (NICs). You’ll also need to within specific time-frames, namely, no later than the 5th October after the end of the tax year during which you first became self-employed. 

The good news is, it’s a pretty simple process requiring you to simply apply via the GOV.UK website. Thereafter you’ll receive your 10-digit Unique Taxpayer Reference (UTR) number, which will allow you (or your accountant) to access your Self Assessment account, which in turn enables you to submit your tax return. 

We would always recommend you register early, leaving plenty of time (one month ideally)  for your UTR to arrive. This will ensure that you can submit your (first) tax return ahead of the deadline and avoid the £100 instant fine from HMRC … not what you need just as you are setting out!

Tackling your taxes

Understanding what tax you are responsible for paying for and relief you are able to claim is crucial. Your Income Tax is determined by your taxable income. So to clarify, this is not your turnover, but rather what you have earnt after any expenses and deductions allowed by HMRC. The amount of tax that you owe HMRC will be calculated based on the Self Assessment tax return that you submit. Likewise, the National Insurance you will be required to pay will be relative to your taxable profit. 

Your bookkeeper or accountant can explain more about tax classes and rates for the current financial tax year or if you prefer, alternatively head over to the HMRC website.

Make self employment less taxing

When you are busy running your business, it’s easy to forget to enjoy the benefits of being self-employed. All sole traders can claim relevant expenses, which will mean lower lower profits and in turn, this will lower your tax liability. 

Knowing what you are able to claim is essential, from the laptop you bought for the business at the very start, the networking organisation you joined, that course that you attended or even the fact the mileage claim for you and your co-worker! The only stipulation set by HMRC is that any purchases are exclusively for business purposes only.

Something else to flag here is organising your expenses. For some clients, filing everything in a shoe box, which is later handed to their bookkeeper works just fine. Others may prefer the convenience of saving and snapping expenses as they go along, either straight to the cloud or using software such as Xero. Either way, you’ll need proof of the expenses you have incurred, saved securely just in case HMRC ask to see them at a later date. 

Relax by real time record keeping

Many sole traders leave it until the end of the tax year to calculate out their income and expenditure. In our experience, not only does this cause unnecessary stress and make for a more convoluted tax return process, it also does not help with managing cash flow within your business.

Keeping records in real-time, by adding the information as you go along throughout the year will help better inform you about your business. Having access to this information will help you make considered decisions, from whether you can afford to upgrade equipment or tools, to how much you owe well ahead of the Self Assessment payment deadline. Almost without exception, any business decisions you make will benefit!

Make sure you are covered

The type of insurance a business requires will depend on many factors, including which industry they operate in. However, all sole traders should consider some general policies. 

For example, public liability insurance will protect your business should a client (or even a member of the public) suffer an injury at your premises or place of work and in most cases, it would also provide cover for damage to property should they decide to take legal action.

Equally, we would strongly recommend that you also consider insuring your business for professional indemnity. In the event that a customer decides to take you to court on account of them being unhappy with the work you have completed or provided, the correct cover would protect you and your business.

Lastly, you are legally obliged to take out employers’ liability insurance if you employ (even only part-time) another person and there is a significant fine for sole traders caught failing to have this, so don’t take the risk!

Obviously insurance is not our area of expertise, so always seek specialist advice from a qualified insurance broker to discuss your individual requirements.

Next steps

In summary, to be successful as a sole trader you need to be maximising your take-home pay and steering clear of HMRC penalties – we’re here to help you achieve both!

So if you are finally ready to become your own boss, contact Jeff today on: 07846 331314 today, to arrange a free 1 hour no obligation chat to discuss your requirements and more tax guidance on becoming a Sole Trader.