Nearly 150,000 people became self-employed during the last quarter.
This is according to new figures from the Office for National Statistics, which noted a sharp rise in the number of people striking out on their own.
But becoming self-employed can be a daunting prospect. As well as running your business, you need to keep up with your legal and tax responsibilities. We have compiled a checklist to help you get ahead in self-employment.
1. Register with HMRC
As a self-employed person you will be liable to complete a Self Assessment tax return. Registering as self-employed with HMRC should be your top priority. You must register by 5 October following the end of the first tax year for which you need to file a Self Assessment tax return. If you fail to do so by this deadline you could receive a fine. You can register online or over the phone; you’ll need your National Insurance number, along with your home and business details.
You will also need to sign up for a Government Gateway account in order to file your tax return. It is important that you do this well in advance of your first Self Assessment deadline, as the process requires HMRC to post you an activation code.
2. Keep records
As a self-employed person you are legally obliged to keep adequate records. In practice, this means holding onto your receipts and invoices, along with your bank statements, and ensuring that these are filed in a suitable manner. You should definitely consider investing in bookkeeping software to help you manage your records. We have compiled a roundup of the best online bookkeeping software.
3. Make payments on time
It is vitally important that you make payments to HMRC in a timely manner. Missing deadlines will result in financial penalties. There are two key Self Assessment tax deadlines: 31 January, and 31 July. On 31 January of each year you will have to make your ‘balancing payment’, plus your first payment on account, with the second instalment of the payment on account coming due on 31 July. Read more about the payment on account.
Additionally, you will be required to make Class 2 National Insurance Contributions and, depending on your income, sometimes Class 4. You should set up a direct debit to make these payments in order to ensure that you do not fall behind; you can choose to pay either monthly or every six months.
4. Name your business
Many self-employed people choose to trade under their own name but, depending on circumstances, you might alternatively choose to adopt a trading name. Before naming your business you should make sure that you are not using a ‘sensitive word’ as defined by Companies House. You may also not use the words ‘Limited’, ‘Ltd’, or LLP, unless you set up a limited company or limited liability partnership.
5. Understand the rules around hiring
Being a self-employed sole trader doesn’t mean that you can’t hire people – it simply means that you are solely responsible for the business. Many self-employed people hire employees to help them operate, but it is important that you are aware of the rules around employment. Use our interactive infographic to find out more about hiring your first employee.
6. Get finance
Financing your business is one of the key challenges facing any newly self-employed business owner. Even if you are not taking on office space or immediately hiring people, there will likely be costs associated with starting to trade. Luckily, there is a growing range of potential sources of funding. Read our guide to finding finance for your business.
7. Get support
Remember that you don’t have to go it alone. There is a range of support available for self-employed people and those setting up businesses for the first time – and, importantly, much of this support is free. Unfortunately, though, awareness of many of these schemes is very low. Read our guide to five of the best small business support schemes in the UK.