If you have made the decision to move towards working for yourself, the options to consider are whether to be a sole trader, a shareholding director of a limited company, or to trade as a partnership.
Once you’ve decided, HMRC will need to be informed. If you choose to go self-employed or to enter into a partnership, HMRC will need to be advised so that they can register you to receive a self-assessment tax return. They will also need to know if you form a limited company.
As a self-employed person (including a partner) it is likely that you will be required to pay income tax and Class 2 and 4 National Insurance contributions under self-assessment.
1. Start-up costs
Starting up a new business can be a costly exercise, and you will need to open a new business bank account for all your future work-related expenditure. It is vital to always keep records of accounts to help ensure the correct taxable profit is reported to HMRC after the end of any tax year.
Budgeting and forecasting
When writing your financial forecast for the business, it is recommended that you factor in the following:
- Do you have access to funds which you can use to start up the business?
- Do you have savings to carry you through periods of no income or unexpected expenses?
- Are there any life changing events on the horizon, such as moving to a new house or having a new baby?
- When employing staff, have you considered sick pay and annual leave?
2. Are credits or grants available?
Understand if you are eligible to claim benefits, tax credits or even grants. You can check this easily by accessing organisations like the Citizens Advice Bureau or Gov.UK websites to establish what you might be eligible for.
To go self-employed, you’ll need to decide where to locate your new business. It may be possible to run it from the comfort of your own home, or you may need to rent or purchase another property as your place of work.
When renting business premises, it is vital that you verify whether there are any rules in place restricting business activity, and you check if the environment is suitable for the type of work which will take place.
If you are renting an office space, you must ensure that you know the monthly costs, outside of the initial rental payments, such as services, or any upcoming upgrades to the building which may increase the rental costs in the future.
Don’t forget, if you convert part of your home into businesses premises, you may be required to pay business rates on top of any existing council tax commitment. You will also be asked to pay these rates if you convert any part of your property into a shop/workshop or if client visits become a daily occurrence and you have dedicated rooms in your home solely for business purposes.
Please call us, if you’re concerned that you might be affected by what we describe in the article. It is always best to be sure of your position.
Check your insurance policy and if in any doubt call your broker to see if you need to take out additional cover for any business activity within your household. This is not an expensive addition and most companies will combine additional cover into one domestic and business policy. If your business requires clients to enter your property, you may be advised to take out public liability insurance, another inexpensive addition to your insurance policy.
You may also be required to hold a license, depending on the nature of your business.
5. Business name
When deciding whether you are going to use a trading name for the business, you will need to be aware of any restrictions in place.
If you thinking of forming a company, you can check if your proposed company name is already in use by using the Companies House name availability checker.
If the business will have a website, you will need to check if there are suitable domains available for your business name.
Once everything is in place, you can get to work on your new business and enjoy working for yourself.
For more information on setting up as self-employed, forming a limited company, and selecting the right cloud accounting solutions, such as QuickBooks, then please contact us.