By the end of 2019, there were more than 5 million people in the UK who were registered as self-employed. Despite so many people working this way, becoming self-employed can be quite daunting if you have never done it before as there are so many things to consider. What type of trader are you? How will you calculate your taxes? How will you plan a budget when your income isn’t guaranteed? Do you need to register for VAT?
We have written a quick and simple guide to starting out, to help you with some of the main considerations for becoming self-employed.
What Type of Trader Are You?
The simplest structure of self-employment is becoming a sole trader. This means that you set up in business by yourself and have to pay income tax on any profits you make. It also means that you are personally liable for any debts and losses of the business.
Another way to start out a business is by starting a partnership. This is similar to setting up as a sole trader but means that the responsibilities of the business are shared. You will share the profits and pay tax on your share.
There are also other ways to trade including through a private limited company or even running a franchise or a social enterprise. If you are unsure about what type of trader you are setting up as, seek advice as it’s important to get this step right.
When becoming self-employed, it’s important to set out costs you will incur to get up and running, including equipment, premises, a website and marketing costs. This list will differ depending on what you are working on. You should also include your personal budget and how much you can afford to invest into the business.
It is also helpful to project the money that you think you will make, although this can be difficult if you are becoming self-employed for the first time, or haven’t done this type of work before. We have another blog post on budgeting which you can read for more information on this.
Paying your Taxes
You need to register to pay tax through Self Assessment on the gov.uk website. If you are self-employed, your taxes and National Insurance are paid for in arrears. This means your payment is due after your tax year, so it is important to calculate how much you will need to pay, and keep money aside for it. Working with an accountant is really helpful to avoid over- or under-paying.
As well as defining your self-employment, budgeting and paying your taxes, there are other things to consider when becoming self-employed including insurance, bookkeeping and registering for VAT if necessary. Because there is so much to think about, we suggest getting help from an accountant to avoid errors. There are many ways we can help you, both on a regular basis or as a one off so get in touch with us and we can discuss your personal circumstances and help you to start out.