There are a number of ways to make ends meet, from lending your services as an employee to striking out on your own as a self-employed earner. Each scenario has its own set of advantages, so your best approach isn’t always crystal clear. If you do decide to go self-employed, however, there are rules you must follow in order to remain legitimate.
Several important considerations arise when contemplating self-employment. Are you a self-starter, capable of keeping your output high – even without supervision and employer incentives? Do you possess financial savvy sufficient to meet the bookkeeping needs of your self-employed business? Does your area of expertise lend itself to self-employment? Or are you better-off promoting your goods and services with the help of a supporting organization?
Answering these and other questions helps illuminate your best approach to making a living. Once committed to an independent effort, your successful self-employed enterprise is subject to the following requirements:
Dedicated Banking
Although you have decided to go self-employed, your business life nonetheless stands apart from your personal life. As such, you must maintain separate accounts for financial transactions tied to your business dealings. Start by opening a dedicated business account, which are often found free of charges and fees. A cash deposit account might also be a good idea, to add some interest to your business cash holdings.
Accurate record keeping is also essential to successful business management. Your diligence is required for tax authorities, but there are plenty of additional reasons to keep your business finances in order. Your own accounting duties are much easier to accomplish when your business books are kept up to date, so personal tax reporting also flows smoothly.
Chose and Declare Your Approach
In order to account for your business income and tax liability, the government requires you to officially declare your status.
Self-employed persons are known as “sole proprietors”. The designation doesn’t necessarily mean you are required to work alone all the time. It is simply a declaration of autonomy, which determines how your income and taxes are handled. As a sole proprietor, you are entitled to all the profits you generate, but you must pay taxes on your earnings. To comply as a self-employed sole proprietor, you must file a Self Assessment tax return each year, but you are also required to pay taxes on any profits earned by your business. In addition, you must buy National Insurance for your business. There are two types of National Insurance, based upon earnings, so you must measure your profits to determine which one is appropriate for your business.
Register for VAT
Certain self-employed persons must take the additional step of registering for VAT. Businesses with taxable turnover greater than £81,000 annually are required to register. The process is conducted through HM Revenue and Customs. Once you’ve received your VAT number, you must meet these standards:
- Charge Appropriate VAT
- Pay VAT to HMRC
- Submit VAT Returns
- Maintain VAT Records and Accounting
Reasons to Consider Going Self-Employed
Becoming a sole trader is part of a comprehensive financial strategy, like those outlined on Readies.co.uk. It carries advantages for some individuals, who find it to be a better alternative than some of the other available business structures. Establishing yourself as a sole trader makes sense because:
- It can be the easiest way to get up and running. Trouble free set-up means you’ll be doing business sooner than by using other structures.
- Compared to other arrangements, establishing yourself as sole trader can be accomplished with limited investment.
- Changing to another mode of operation is not excluded by sole proprietor. You can easily adjust your approach down the road, if appropriate.
Self-employment has a number of advantages, when compared to other ways of doing business. However, it isn’t for everyone. Before you commit to a particular business structure, answer important questions, to ensure sole trader is your best alternative.
