how to go about it? Starting up as a sole trader is probably a lot easier than
you think. Here are five simple but important steps that will enable you to
enjoy the full range of self-employed benefits.
Register as Self-Employed with HMRC
National Insurance contributions and income tax, you will need to inform HMRC
that you are self-employed within three months. This is essential even if you
already pay your taxes through the self-assessment process every year. You can
register as self-employed with HMRC online or you can phone them on 0845 915
National Insurance contributions, or NICs. These will be Class 2 NICs and are a
flat rate of £2.80 per week for the current tax year of 2015/2016. If your
annual income is below £5,965, you will not have to make any National Insurance
Class 2 NICS
Class 4 NICs if the total profit you make is more than £8,060. If the profit
you make is in between £8,060 and £42,385, you will have to pay 9 percent of
that in NICs and a further 2 percent on any profit that is in excess of
business’s annual turnover is more than £82,000, you must register for VAT with
HMRC. This applies at any stage during the year when you think you might make
more than the VAT threshold, and you must let them know within 30 days or you
could face a fine.
you doubt your earnings will cross their threshold. Having a VAT number can
give your business credibility, and you will be able to claim back VAT on any
eligible purchases you make such as work-related equipment.
than the standard scheme. The flat-rate scheme makes VAT accounting much
simpler. Consult your accountant to see if it is the most profitable option for
Set Up a Business Bank Account
your business finances separate from your personal spending. The easiest way to
do this is to open a business bank account that is entirely separate from your
personal banking. Your business account might be called ‘Fred Smith trading as’
(or T/A) followed by the name of your business. Your invoices and cheques will
look more professional too if they display your business name.
account, which will enable you to earn some interest on any money you hold in
your account for a period of time.
will mean that paying the correct amount of tax should be a relatively
straightforward affair, and you will keep your accountant and the tax man
happy. It will also help you to run your business efficiently.
are VAT-registered, simply pass the financial records you have been keeping for
the past year to your accountant and complete your self-assessment tax return.
legally required to have certain insurance policies. The type of insurance will
vary, of course, depending on the nature of your business or industry. You
might also opt for additional insurance cover for extra reassurance.
family member), you are legally required to have employer’s liability insurance
of at least £5 million. You will be given a certificate of insurance which you
are legally obliged to display somewhere where your employees can read it.
Failure to have such insurance will result in a substantial fine.
insurance. This is a particularly good idea if members of the public are likely
to visit your premises or you will visit them. This gives you protection if a
third party is injured or a property damaged as a consequence of your business
Professional indemnity is also recommended, as it will
provide you with cover if you are sued by a client.