Lesson 2 – Starting a new business

How do I legally become Self-Employed?

You need to set up as a sole trader if any of the following apply:

      You earned more than £1,000 from self -employment between 6 April of previous year to 5th of April 2020

      You need to prove self-employed, for example to claim Tax-Free childcare

      you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits

You can do this by registering on the HMRC website here: https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

Currently, the standard Personal Allowance is £12,500, which is the amount of income you do not have to pay tax on.

Your responsibilities include:

      Keeping a record of your business sales and expenses. Currently you could do this quite simply using a spreadsheet but in time this will need to be digital. There are plenty of apps out there which are easy to use like Xero, Quickbooks etc.

      Submit a Self Assessment tax return every year, which is done online with your HMRC login

      Pay Income Tax in your profits and Class 2 and Class for National Insurance – You can use the HMRC’s calculator to help you budget for this https://www.gov.uk/self-assessment-ready-reckoner

If you are not sure whether you should be a Sole Trader or a Limited Company then you can read more about the pros and cons on this website here: https://www.simplybusiness.co.uk/knowledge/articles/2020/06/difference-between-a-sole-trader-and-a-limited-company/

The current VAT registration is when you exceed £85,000 but this can change so stay up to date by clicking on the GOV website here: https://www.gov.uk/vat-registration-thresholds

Finally, if you are unsure how to record your numbers or how to do your tax return then it might be worth getting some professional help via a local Bookkeeper or an Accountant. On many occasions this is worth the investment in saving you money in the future.