What to remember when you become self employed
There are so many benefits to being self employed (including more freedom of time, more money, and not having to answer to a boss) that more and more people are choosing to do so. It is relatively easy to set yourself up as a sole trader and begin work. However, there are some crucial points that you will need to remember to be successful and get everything right and be above board. Read on to find out more.
Register With HMRC
When you have chosen to become self employed, you must remember that you are now responsible for paying your taxes. If you worked for someone else in the past as a salaried employee, they will have dealt with the tax implications around your money, paying HMRC on your behalf. This will not be the case when you are self employed, but the money you make will be taxed, and you will need to pay your tax bill after submitting a tax return every year.
To begin with, you need to register as self employed with HMRC. You have until 5th October in the second year of being self employed to do this, so if you want to make sure it really is for you, you do have some time to try it out before registering. Once you are registered, you will need to pay your tax, so you’ll have to keep records and put the money aside so that you can pay when you need to. There are no excuses for not paying tax, and the penalties are severe.
Open A Business Bank Account
Although you could have all of your business payments paid into your personal bank account, this can become unnecessarily complicated, especially when it is so easy to open up a separate bank account for your business.
You will need to keep accurate records for tax purposes. If an accountant can’t separate your personal spending from your business spending, you might end up paying too much or too little in tax; neither of these scenarios is positive. If you pay too much, it can be difficult to claim a refund, and if you pay too little, the fines can be steep.
Have all your invoices paid into and from your business account, and then pay yourself at the end of each month just as you would expect if you were working for someone else. Some months there will be more and some there will be less, as this is the nature of being self employed, but if you pay just once a month rather than throughout, you will be more able to budget your bills.
Keep Up To Date Records
We’ve already covered just how important it is to keep up-to-date financial records for tax purposes, but you will also need to keep all kinds of other records too. This includes correspondence between you and your suppliers or your customers, as well as documentation to prove your insurance and VAT registration, for example.
The more accurate and organised you can be when keeping these records, the easier it will be should you be subject to a random audit or check. Also, if you need to find something because you need it or a customer or supplier has asked for it, you will be able to find it quickly, saving yourself a lot of time and stress and proving a certain level of professionalism at the same time. Not only that, but good records will help with your personal goals, too; getting self employed mortgages will be a much easier process when you can prove your income quickly and definitively.
Insurance is vital when running a business, no matter how big or small it might be. Depending on what you do and what sector you are in, and also whether you come into contact with the general public, there are different types of insurance that you can take out for your business. You can even get freelancer insurance. Make sure that you speak to a professional insurance broker or provider if you are confused. Having the wrong type of insurance is a legal issue, and you might even have to close down your business should something go wrong.
It can be tempting to think that paying for insurance is a cost that you simply don’t need, especially when you have just started and money might be tight, or you have a lot of other things to pay for. However, saving money by not paying for any insurance is a false economy; if something were to go wrong and you don’t have the insurance in place, you will end up paying a lot more than if you did and your business’ reputation will suffer. If you’re just starting out, this can be absolutely devastating and even spell the end of your venture before it has a chance to become something.