There were more than 5 million self-employed people in the UK by Q4 2019 according to the Office of National Statistics, – up from 2000’s 3.2 million self-employed workers.
But starting up your own business can be as scary as it is exciting. As well as getting out there and showing off your services, there is also a lot of behind-the-scenes paperwork you’ll have to tackle that you might not have previously needed to do..
We’re talking, of course, about tax, National Insurance Contributions, and other paperwork that regularly needs to be filled out to keep HMRC happy and updated on your financial affairs.
Starting up properly
As daunting as it sounds, though, it’s all easily manageable with the right plan in place. The trick is to build on strong foundations; some of which include:
- Market research: What is the demand for your product in your area? Who will your customers be? How fierce is the competition? Are you looking to start local and build up, or do you have national and international ambitions? The more data you accrue before starting up, the better.
- Identity and marketing: Once you have built up that information, you need to create an identity for yourself to set yourself apart from the competition. What will your logo look like? What is your Unique Selling Point? How will you market yourself to the people you want to attract most?
- Take baby steps: Baby steps are important if you want to be successfully self-employed. Test the waters of your market to gauge the appetite. Why not start your service part-time and work up to full-time self-employment? Test your identity and services and build up a client-base before jumping in feet first.
Your options as a self-employed worker
So, you’ve done all of the above and have the idea in your head, with data to back it up. It’s time to register your business – but what’s the best way to do it?
A lot of this decision depends on what you want to do and how you plan to do it. For instance:
- Registering as a sole trader is a good option for those who are determined to work for themselves, want less admin and more privacy. They will have to prepare a self-assessment tax return every year, keep a record of all expenses, and pay income tax and national insurance on all their profits.
- Registering as a limited company is for those who envisage growing their business into a fully-fledged brand with employees, an office space and more. Limited companies have more admin to handle, but aren’t personally liable for if the business fails as a sole trader is.
Find out more here.
Your tax obligations as a self-employed worker
As we’ve briefly mentioned, the route you take when registering as self-employed will have an impact on the type of tax you pay and the amounts, too.
If you are working through your limited company, for instance, then the added burden of annual corporation tax will fall on your shoulders – something which won’t happen if you’re a sole trader.
On the other hand, though, you have minimal protections as a sole trader when compared against a limited company owner. If things go wrong, then you will have to handle all the liabilities yourself and this could also put your personal assets at risk.
However you register your business, it’s essential to keep records of every transaction you make – incoming or outgoing – to make sure you’re paying the appropriate amount of tax to HMRC annually.
Those records will also be handy further down the line if you wish to develop a business plan to grow your business and approach lenders such as banks for business loans.
Also, keep in mind that – sole trader or limited company – you’ll have to register for VAT for turnover exceeding £85,000 over a consecutive 12-month period.