Self-employed is also called sole trader.
As a self-employed you will be personally responsible for any losses your business makes, any business’ bills and for keeping accurate records of your business’ sales and spending.
Your tax responsibilities as a self-employed to HMRC are:
What you need to consider when setting up as a self-employed.
Draw up a simple budget, it doesn’t have to be anything over complicated but you should have an idea what costs will involve setting up a business and the costs associated with it especially for the first year or so. Statistically one in five sole traders go bust in the first year of trading and only 40% will pass the five-year hurdle. So, while it is important to spend money to run your business it is also important to keep costs under control.
Business plan. This will be your goal (your strategy) for the first year or two (you can consider longer terms even). Draw up ideas and set up objectives and plan for the future. Be honest however do not be over optimistic, be realistic (think of what is achievable). You business plan can later be presented to financial institutions such as banks or maybe individuals to obtain finance for your business.
Paying taxes to HMRC. There is no way you can avoid this so it is important that you follow all the tax rules to avoid paying unnecessary penalties. As a sole trade you will have to register for self-assessment tax return which will need to be filled with HMRC by 31 January following the end of the previous tax year (a tax year runs from 6th April to 5th April every year).As a sole trader you will also need to pay national insurance contribution on your yearnings. You must register for self-assessment tax return within 3 months of the end of your first month in business or HMRC will fine you up to £100.
Value added Tax (VAT). Once you settle up and start having customers your turnover will grow. Value Added Tax, is levied on the sale of goods and services. It is a type of ‘consumption tax’ because it is charged on items that people buy and is also an ‘indirect tax’ because it is collected by businesses on behalf of the Government. When your taxable turnover reach £85,000 or more you will need to register for VAT. For some businesses however it can be beneficial to register for VAT earlier (voluntary registration). If you’re VAT registered, you will need to charge VAT on the goods and services you supply.
This is an area that is often overlooked by sole traders, but record keeping can cause big business problems. Failure to present financial record to HMRC when requested may mean that your tax returns are inaccurate and can result in hefty penalties. You will need to keep track of what you are charging clients for your goods and services, as well as any business-related expenses. Acceptable records include receipts, bank statements, invoices and till rolls. You will not need to send your records when you submit a tax return, but you will need to keep them for five years after the relevant tax return submission deadline. For example, for your 2018/19 tax return, you will need to keep your records until 31 January 2024.
Business bank account
If you’re a sole trader or in a partnership, you do not need to have a business bank account. But you might find it useful to keep your business and personal finances separate, particularly if you’re in a partnership.
If you’re running your own business, it’s important to make sure you’re insured. You will certainly need some kind of business cover, such as public liability and equipment insurance, but there are a wide range of products available.
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