Making the leap to become self employed is an exciting decision. However, it’s important to take the right steps initially to prevent any costly backlash later. If you’ve been considering registering as a self employed individual, here’s what you need to know about the registration process, your business model, online banking, and taxes.
When you’re required to register as a self employed
If you’re making over £1,000 from self-employment in a single tax year, you’re required to register as a self employed individual. This income could include starting a dog walking business to getting paid a commission from a direct sales company. It’s important to note that the £1,000 pertains to total income, not profits after expenses have been calculated.
While you aren’t required to register until you break that threshold, there are reasons to be proactive. If you’re starting a business and see yourself making more than £1,000 in the first year, it’s worth registering right away. Doing so will remove ambiguity about when you hit that threshold and save paperwork later on.
Limited company vs Sole trader
There’s a difference between starting a company and becoming a self employed individual. This concept can be confusing for some, but there are a few key differences to consider when registering. As a sole trader, you are your business. Your business taxes are your personal taxes, and the profit you make is registered as your income. You’ll be required to keep records of your business income and expenses, file a self-assessment every year, pay for insurance, and be personally liable for your debts.
A limited company creates a separate business entity. It has shares, shareholders, and a director and is subject to business taxes. You’ll be required to have a memorandum of association and articles of association. If you’re registering a small business, such as a restaurant or childcare center, you’ll likely be a sole trader. Don’t hesitate to reach out to your local Business Support Helpline to clarify which structure is right for you.
Creating a separate bank account as a self employed
If you are a sole trader, you’ll need separation between your business and personal bank accounts. While your personal income will ultimately be tied into your business income, this separation is essential for preventing audits and costly fines. You can get a business bank account that allows you to process payments and create separation through Amaiz. This service will also help you create financial documents that will save you time and money during tax season.
Registering for insurance
As a self employed individual, you’ll be required to pay National Insurance. If your profits amount to £6,475 after expenses, you’ll be required to pay Class 2 National Insurance. If you cross the threshold of £9,501 after expenses in a calendar year, you’ll also pay Class 2 National Insurance. National Insurance payments cover things like pension, maternity benefits, and employment loss benefits and are well worth the cost should a situation arise.
If you register as a sole trader, you’ll be required to submit a Self Assessment Tax Return each year. This return will help the HMRC calculate your required income tax payment. The tax year runs from April 6th to April 5th the following year, with the tax submission deadline placed on October 5th. If it’s your first year filing, give yourself an extra month to process your registration. If your business makes over £85,000 per year, you may also be required to pay VAT. For newly self employed individuals, this isn’t usually a concern. However, it’s important to be mindful of this requirement as your business grows.
Starting a business can be a tedious process. Don’t hesitate to reach out to local programs for assistance during the initial process.
Author Bio: Ashley Lipman is an award-winning writer who discovered her passion for providing knowledge to readers worldwide on topics closest to her heart – all things digital. Since her first high school award in Creative Writing, she continues to deliver awesome content through various niches touching the digital sphere.
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