The simplicity of starting and operating your own business is one of the key advantages of working for yourself. Even when working for someone else, you might apply to become a sole trader, which is another word for self-employed, to see if you like it. Here are 5 things you must do when you decide to become self-employed…
#1 – Registering with HMRC as a self-employed person
You will be responsible for paying your own income tax and national insurance (NICs) after you are established as a sole trader. If you decide to work for yourself, you must register with HMRC. This can be done at any moment up until the fifth of October of your company’s second tax year. From 6 April to 5 April of the following year is the tax year. So, for instance, if you began operating as a sole proprietor in January 2022, you must at the very latest register as self-employed with HMRC by October 5, 2022. Because January 2022 falls inside the 2021/22 tax year, the second tax year for your company will begin on October 5, 2022. Your unique situation will determine how you register with HMRC as a self-employed person.
#2 – Determine whether or not you must register for VAT
If your company generates £85,000 or more in revenue annually as of April 2022, you must register for VAT. Also if your company appears to be on track to reach this annual VAT threshold during the next 12 months, you must register at any point in the business cycle. Typically, the threshold increases by a few thousand per year. To avoid paying a fee, make sure to notify HMRC within 30 days.
You may choose to register for VAT even if you don’t have to in many circumstances. By acquiring a VAT number, you’ll be able to reclaim the VAT on certain transactions you make and may gain greater credibility for your new business.
Another option to take into account is the flat rate VAT scheme, which makes VAT filing much easier. Your accountant can help you decide whether the Flat Rate or conventional VAT scheme is preferable for you.
#3 – Open a bank account for your company.
It is crucial to maintain your business documents and funds independent from your personal matters even if, as a sole proprietor, your business revenue will be taxed concurrently with your personal tax. Some brand-new internet banks now provide business accounts that are totally free. These can be a particularly good alternative if the majority of your banking needs can be handled online.
#4 – Maintain current and accurate financial records
You must stay on top of your books if you want to be a successful sole trader.
You have a responsibility to maintain complete and accurate records of all business transactions from the beginning. Being organised and keeping your paperwork up to date will not only keep the tax authorities happy, but it will also make it much simpler for you to run your business.
#5: Manage your tax bill.
The next step is to determine the taxes you’ll have to pay. Your taxable income determines your income tax, which is the first (that is, your earnings minus any allowable expenses and deductions). HMRC determines your tax obligation using the data from your Self Assessment tax return.
Beginning as a sole trader or self-employed person is the most typical path to take when starting a business, but as you gain more experience, you might think about it or your circumstances might require that you switch to being a limited company. Your accountant would be in the greatest position to guide you through this important decision because they would explain the key distinctions between the two primary business structures in the UK—self-employed and limited company—when it comes to self-employment vs. limited company.
If you are about to commence your business journey, please do get in touch with us here at DNA Accountants we are always happy to talk business.