It’s a lot to know when you’re going self-employed, and if you’re going to make it in this new world of entrepreneurship, you’ll need to get yourself prepared.
Working for yourself can be a great option for a lot of people. It provides a lot of flexibility in regard to hours and fitting work around your personal life, you have more control over your income, and you get to do something you are passionate about instead of being stuck working for someone else. There are also some downsides, such as irregular income, little or no access to employment benefits, and having to do your own bookkeeping and tax returns.
If you are still tempted to go down the self-employment route, then here are a few things you need to know before you set off on your journey.
The different kinds of self-employed businesses
When coming up with your business plan, you will need to decide what kind of structure you want to go for and weigh up the pros and cons of being a sole trader vs limited company. A sole trader runs a business as an individual and will keep any after-tax profits. This also means that you will be personally responsible for any debts associated with the business. A limited company is its own legal entity, separate from those that own and run it, and after-tax profits are divided among the shareholders. There are other options, such as a partnership or a limited partnership, if you are going into business with one or more other people.
Firstly, and most importantly, you need to make a budget. You need to think about all the possible costs you might face when going self-employed, such as renting a space to work, buying or hiring a vehicle, setting up a website, advertising and marketing, and anything else you might need to invest in. You should also consider your personal costs like your mortgage, bills, rent, and food. Think about how much of your own money you can afford to invest and assess whether you need to look for an investment or a business loan.
Before you get stuck in, you need to register for Self-Assessment to pay your own taxes. You pay tax and national insurance of your self-employed earnings in arrears – so any tax you owe on money earned in 2022/2023 is not due until January 2024. You need to plan for what could be a potentially substantial bill. A limited company or a limited liability partnership will also need to pay corporation tax on your profits.
Registering for VAT
If you or your business has a turnover of £85,000 or more, you need to register for VAT. However, many businesses benefit from registering even with a turnover below this. If you are VAT registered, then you will need to charge VAT on the goods and services you supply, but you can claim back the VAT you paid on any goods or services relating to your business.
Business Bank Account If you are a sole trader or a partnership, then you do not need to have a business account but it is advised you keep your business and personal finances separate, especially if you are in a partnership.