Running your own affairs as a professional can be very enticing. Indeed, 2018 showed a significant rise in numbers, with over 4.8m workers in the United Kingdom registering as self-employed according to the Office for National Statistics (ONS). That’s a significant portion of the country. It’s rising as we speak for 2019 too. Getting started as self-employed, does require you to consider a few important points before moving forward. In this article, we’ll help you to get started and operating on a self-employed basis as soon as possible.
WHAT MAKES YOU SELF-EMPLOYED IN THE UNITED KINGDOM?
Self-employment can be a confusing practice. Typically, you would be considered to be self-employed by HMRC if you:
- Are responsible for the success and/or failure of a business that you operate alone.
- Deal with multiple customers in tandem with one another.
- Provide your tools and equipment to do the job personally.
- Sell goods or services for a profit online or offline.
- Hire others to help you to complete tasks alongside you or for you.
- Choose when, where and how you work.
To see a full list of what HMRC might consider self-employment, be sure to check out this guide.
REGISTERING YOUR SELF-EMPLOYED BUSINESS PROPERLY
First off, you will need to inform HMRC that you wish to work for yourself, so that they know you need to pay tax on what you do. How you register will depend entirely on the kind of work that you intend to do. The majority of sole traders (operating alone) will register as being self-employed, and will be expected to submit an annual tax return.
Should you choose to incorporate your business instead, you will need to register your business with Companies House and also file annual accounts. This will mean you also need to pay corporation tax, as well as nominate a main shareholder and a director. Since you are likely to be working alone, both main shareholder and director could be yourself personally.
If you wish to register yourself for self-employment, then you will need to register for Self-Assessment. We recommend that you look to do this as soon as possible, if you wish to show that you are self-employed.
GETTING TO GRIPS WITH TAXATION AS A SELF-EMPLOYED PROFESSIONAL
Taxation can be a confusing process when self-employed, and it’s always recommended that you look to bring in professional assistance if you are unsure. You will need to pay income tax on your profits, which could be anything from nil to 45% depending on how much income you have earned.
You’ll also need to know a bit more about National Insurance if you wish to go self-employed. At the time of writing, anyone with profits above £6,205 will pay Class 2 National Insurance Contributions (NICs). Anyone over £8,424 in profits will need to pay Class 4 National Insurance. Be sure to read more into self-employed National Insurance rates here.
Lastly, be sure to look into IR35 rulings. This could impact on you if you are working as an employee, as HMRC might look to treat you as such and thus this could leave you liable for NIC costs. You should look to find out more about your potential role with regards to IR35.
DEALING WITH CASH FLOW WHEN SELF-EMPLOYED
Part of being self-employed is dealing with your cash flow issues. If you work for a company, then you know that you will be paid by the company on a certain date or time. Running your own company brings less certainty. You could find yourself earning far more than you had intended at one stage, but then far less than you hoped for shortly.
You should look to start making savings as much as you can. We recommend that you try and build up a minimum of half a year’s salary in savings which could be used to help insulate you from a slowdown in work. More importantly, you should be looking to save around one third of every contract. Why? This will help to pay your tax bill the following year.
If you are up-to-date on your taxes, then one recommendation is that you set up what is known as a Budget Payment Plan. This would see you pay a monthly sum to HMRC, which would then contribute towards next year’s tax bill. If you budget yourself properly, this could help you pay off most or all of next year’s tax by the time your bills are due. You can read more about these payment plans here.
PREPARING FOR THE FUTURE
Depending on your industry, you might find that certain times of the year are more suited to work than others. For example, a roofer is less likely to work in winter than they are in summer. Someone within an IT office, might find it easier to carry out the bulk of their work in the winter, when temperatures are lower and offices are cooler.
You should look to make sure that you try and work out your peak work times and the times of year you are likely to see a drop-off in performance. If you do that, you should be able to use the busier times of the year to save up enough money to help you through the weaker periods of the year. As ever, you should be looking to plan out the long-term aim for your business, both financially and in terms of business structure. You might not know exactly where you wish to be, but you should have a year-in, year-out plan to help you through the next 12-months.
BRINGING IN THE RIGHT ASSISTANCE
Hopefully, you will be too busy to have time to worry about anything other than enjoying your thriving self-employment. However, you will find that one of your biggest challenges will be finding the time to manage your books and set up your accounts. If you are unsure about self-assessment, then it always pays to bring in the help of an accountant.
At Devonshire Green, we can help you to make the right calls about how to look after your business. If you want to stay focused on doing the work properly, then contact us today. We can help you look through your books and make the best business decisions, helping you to work out what can and cannot be an expense – and how much each expense could be worth.
That could be worth its weight in gold over the years. The savings of both time and money could help to benefit you to build up that buffer of savings mentioned above, or to put more into every job that you do.
Regardless of your reasons, if you need help in tackling self-employment we will be more than happy to help you do just that. Contact us today if you want help in making your steps into self-employment as successful as possible.