Ready to take your business idea forward? Making money outside your salaried job and unsure what or how to declare? We’re here to help with this guide and checklist, or you can give us a call if you’d prefer to talk through things.
Bringing in less that £1,000 per year?
If you are being paid for work but this is £1,000 a year or less, then there is nothing to declare to HMRC as everyone gets this tax free trading allowance. This is for any type of work or property rental. After this you will have to register for self-employment with HMRC
Becoming Self-employed checklist
When starting out being a sole trader is the simpliest and most commor way to start a business and this is what we will be discussing here. However, you may need to (or want to) set up as a limited company. Limited companies are more complex in their structure, require more admin and you won’t have direct access to the money you make through them. Have a read of our guide limited companies versus sole traders to better understand the difference in their structures and how they operate.
Starting as a sole trader
When becoming a sole trader there are some things you need to,
- tell HMRC that you’re self-employed – so that they know you need to pay tax through Self-Assessment and pay Class 2 and 4 National Insurance contributions
- set up a business bank account – If you handle cash often it may find it easier to use a local bank instead of online banks such as Starling or Tide
- establish a process for recording your profits and evidence of your business expenses – this will make it much easier when it comes to completing your HMRC tax return
- check your tenancy agreement or mortgage agreement to make sure you’re not contravening any terms if you’re working from home – you may need to notify your landlord or mortgage lender
- sort out your insurance – professional indemnity insurance and public liability insurance are the main types of business insurance to consider, but there are plenty of other covers too
- think about your pension – If you’re not working a salaried job around your self employment you won’t be paying into a workplace pension any more, it may be a good idea to set up a private pension so that you’re still putting money aside for retirement (You may like to read our article on the pro’s & con’s of fulltime self-employment)
All of this we can help you with if you wish to book in a phone call or email direct at firstname.lastname@example.org
How much tax and national insurance will I pay?
How much tax and NI you pay will depend on your profit for the year (Between April 6th to April 5th) which we can help you calculate once we know your income for the year and all your allowable expenses.
This will need to be paid across to HMRC by January 31st every year, this is the deadline but can be compiled and completed any time after April 5th.
For example, if you start trading on June 30th 2022, then everything your business has done between June 30th 2022 and 5th April 2023 will be used to calculate your profit and tax.
We recommend passing this information to your accountant as soon as you can after April 5th so you can better organise payment, and not be left with a large unknown bill at the last minute
What can I claim as a business expense?
In terms of what you can subtract from your income when you’re figuring out the self-employed profit that’s taxable, the list includes business insurance, part of your utility bills if you work from home, office costs, stock, and certain business-related travel.
As a general rule the expense need to bought for the business only, and not for you personally. You can check the government’s self-employed guidance carefully though, as you could get in trouble with HMRC if you subtract something that’s not an allowable expense, or if you don’t have evidence of the expense. But we will help you ensure everything is claimed correctly as the year progresses.
It is worth noting that the evidence you keep does not have to be on paper, this can be digital! As long as the record you keep are complete, accurate and can be read clearly then this is all acceptable to HMRC, and save on storgae space in the office.