What To Remember When You Become Self-Employed
There are so many benefits to being self-employed (including more freedom of time, more money, and not having to answer to a boss) that more and more people are choosing to do so. It is relatively easy to set yourself up as a sole trader and begin work. However, there are some important points that you are going to need to remember in order to not only be successful but to get everything right and be above board. Read on to find out more.
Register With HMRC
When you have chosen to become self-employed, you must remember that you are now responsible for paying your own taxes. If you worked for someone else in the past as a salaried employee, they would have dealt with the tax implications around your money, paying HMRC on your behalf. This will not be the case when you are self-employed, but the money that you make will be taxed, and you will need to pay your tax bill after submitting a tax return every year.
To begin with, you need to register as self-employed with HMRC. You have until 5th October in the second year of being self-employed to do this, so if you want to make sure it is for you, then you do have some time to try it out before registering. Once you are registered, you will need to pay your tax, so you’ll have to keep records and put the money aside so that you can pay when you need to. There are no excuses for not paying tax, and the penalties are severe.
What About VAT?
You will probably have heard of VAT which stands for value-added tax. Whenever we buy something, we are paying VAT as well (although some products such as most foods and baby products are exempt). Business owners are able to offset the VAT they pay when they buy supplies against the VAT they charge if they are registered to do so. However, not all businesses need to be registered.
If your business turns over £85,000 or more each year, then you have to register for VAT. If it is less than this figure, you don’t have to, but you can if you prefer. Reasons for doing this include having more credibility if you have a VAT number, for example. If at any stage in the year it seems as though your turnover is going to exceed £85,000, but you are not registered, you can register online.
Open A Business Bank Account
Although you could have all of your business payments paid into your personal bank account, this can become unnecessarily complicated, especially when it is so easy to open up a separate bank account for your business.
You will need to keep accurate records for tax purposes, and if an accountant can’t separate your personal spending from your business spending, then you might end up paying too much or too little in tax; neither of these scenarios is positive. If you pay too much, it can be difficult to claim a refund, and if you pay too little, the fines can be steep.
There will be fees associated with a business bank account, but in relative terms, they are low and will be around £10 a month, although this will vary from bank to bank. Some banks will offer special deals for new businesses, so it is worth searching around for something that will suit you rather than just opting for the business version of your personal account.
Have all your invoices paid into and from your business account, and then pay yourself at the end of each month just as you would expect if you were working for someone else. Some months there will be more and some there will be less, as this is the nature of being self-employed, but if you pay just once a month rather than throughout, you will be more able to budget your bills.
Insurance is vital when you run a business, no matter how big or small it might be. Depending on what you do and what sector you are in, and also whether you come into contact with the general public, there are different types of insurance that you can take out for your business. Find out more online and make sure that you speak to a professional insurance broker or provider if you are confused. Having the wrong type of insurance is a legal issue, and you might even have to close down your business should something go wrong.
It can be tempting to think that paying for insurance is a cost that you simply don’t need, especially when you have just started and money might be tight, or you have a lot of other things to pay out for. However, saving money by not paying for any insurance is a false economy; if something were to go wrong and you don’t have the insurance in place, you will end up paying a lot more than if you did, and your business’ reputation will suffer. If you’re just starting out, this can be absolutely devastating and even spell the end of your venture before it had a chance to become something.
Keep Up To Date Records
We’ve already covered just how important it is to keep up to date financial records for tax purposes, but you will also need to keep all kinds of other records too. This includes correspondence between you and your suppliers or your customers, as well as documentation to prove your insurance and VAT registration, for example.
The more accurate and organised you can be when keeping these records, the easier it will be should you be subject to a random audit or check. Also, if you need to find something because you need it or a customer or supplier has asked for it, you will be able to find it quickly, saving yourself a lot of time and stress, and proving a certain level of professionalism at the same time.