Firstly, congratulations! Taking this step is huge, and it’s important, and you should be very proud of yourself. It will be hard, and it will be scary at times, but it will also be worth it. So well done.
Now, onto the technicalities. If you get things right from the very beginning, you’ll find that when it comes time for audits, VAT returns, tax returns, self assessment forms, and PAYE if you employ people it will all be much more straight forward. The first and most important thing you have to do when you decide to go self employed is to register that with HMRC. Her Majesty’s Revenue and Customs will definitely want to know, as you’ll now be responsible for paying your own income tax and National Insurance (NIC). You need to register as self employed (usually as a sole trader, unless you have decided that your business venture should be a limited company) within three months of beginning to work for yourself, and you need to do this even if you already complete a self assessment form each year for whatever reason (incoming on rental properties for example). Registering is just a few mouse clicks or a phone call away, and once it’s done you can relax and start getting the business to make money!
And of course, once you’re making money, you’ll also need to pay tax on it. Currently, you will need to pay Class 2 NICs which equates to £2.80 a week (although if you make less than £5965 you won’t have to pay this). On top of that, there is the Class 4 NICs, which is currently 9% of your annual profits (assuming you make between £8060 and £42385).
Another consideration when becoming self employed is whether to register for VAT. It’s not compulsory unless your business turns over £82,000 or more in a year (at the current rate; this does tend to rise each year), but many smaller businesses apply anyway, as it gives them a measure of professionalism, and also enables them to claim back VAT on purchases. We’ll go into more details about VAT in a later post.
Now we’ve definitely touched on getting your own business bank account before – it’s a good way to keep your personal and business finances separate (although if you’re a sole trader that’s not quite so important), and another way to gain respectability in your business. Shop around, and pick the best one for your needs. You can get some great deals and rewards if you take the time to really look. You might even get some free banking.
Insurance… think you don’t need it? Maybe not, but if you employ anyone, offer any kind of professional advice, or have people visiting your place of work or visit them in theirs (or their homes etc), then it’s best to have it. Just in case. And again, shopping around to get you some great deals.
You also need to think about keeping accurate and up to date financial records. At year end, when you pass everything over to your accountant, you don’t want to be answering questions or looking for receipts in a rush before the deadline runs out. As well as that, your accountant wants to be able to do their job without bothering you for information all the time. For quick and easy year end that will go swimmingly and without a fuss, make sure you keep a good record of your outgoings and income.
Most of all, enjoy it. It may be hard work, there may be some paperwork involved, but for freedom and quality of life this could just be the best thing that you’ve ever done. And if not, well, at least you gave it a go.