Checklist for Going Self-Employed

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The number of people choosing to become self-employed has increased at a dramatic rate over the last few years. According to the latest figures released by the Office of National Statistics (ONS), the number of self-employed people during this year’s summer months hit nearly 4.8 million, equating to over 15% of the total UK workforce. This is also a 6% increase when compared with the same period last year.

Although a 6% rise may seem small, proportionally this is well above average, with overall employment increasing by just 1.1% over the same period.

Are you considering becoming self-employed? If so, we’ve put together a checklist of things you should do and know in order to be ready for self-employment.

  1. Am I classed as being self-employed?

Many people wonder what ‘counts’ as being self-employed. If you’re running a business that you are directly responsible for the success for, decide when and where you work, and provide yourself the main things you need to do your job, then it’s likely you are/should be classed as self-employed.

Sole traders and partners are classed as self-employed by the HMRC. If you set up your own limited company, then you are not classed as self-employed, but as both an owner and employee for your company. You will then follow different rules on tax and NI contributions.

In addition to the above, you can also be classed as self-employed if you are part of a co-operative or are a franchisee.

It is possible to be both employed and self-employed at the same time. For example, if you have a full-time or part-time job in the day and run your own business in the evenings, on weekends or during holidays.

  1. Register with the HMRC

Once you have established that you are self-employed, you must register with HMRC. You have up until October 5th in your business’ second tax year to do this.

  1. Organise your finances

Whether becoming solely self-employed or partly, it is important to make sure that your finances are well organised. Becoming self-employed means that you will be relying on yourself for either all or part of your income, and so must make sure you will have enough money to live on as well as to start the business itself and keep it going.

For many, this is the most difficult and stressful part of becoming self-employed. That’s why the Government started up the Start-Up Loans scheme, to offer financial and mentoring support to those starting up. This confidence boost and financial support is exactly why we’re proud to be a delivery partner of the Start-Up Loans scheme.

If you think you could benefit from a start-up loan, visit our loan calculator page.

  1. Accurate accounting

This may be the first time you have had to produce a profit and loss account, cash flow statement or balance sheet. Now is the time to brush up on your accounting skills or learn something new. Remember, what you don’t know can always be learnt, so look out for training courses near you that can teach you the skills you need and this will also save you money in accountant fees in the long-term. But remember, mistakes can be costly. So, until you are completely confident or qualified, an expert opinion is well-advised.

As part of our loan application process, we help business owners with cashflow forecasting. If you’re looking for a small accountancy firm, we highly recommend using Rona Kerr:

  1. Taxing taxes

As a self-employed person, you are now responsible for your own working taxes. This includes income tax, any tax reliefs or allowances that you are eligible for and VAT (if eligible).

As with your accounting, it is extremely important to get this right. In the tax year 2013-14 penalties were issued to almost 15,000 taxpayers on the grounds of "deliberate" actions, such as understating income.

If in doubt, always seek professional advice, take a look at the following link for more information:

  1. National Insurance (NI)

Let’s start with National Insurance. Whether or not you have to pay NI contributions depends on how much you earn. To find out, take a look at this useful page from Citizens Advice.

  1. VAT

As of April 2016, if your business has an annual turnover of £83,000 or more, you must register for VAT.

If at any stage you look like you’re going to hit this annual VAT threshold over the coming 12 months, you must also register.

  1. Business rates

If you have a business premises (even if this is your home), then it is likely you will need to pay business rates to your local authority. If you work from home, then you may have to pay both business rates and council tax.

For more information in England, Wales and Scotland about council tax, see the Citizens Advice page on Council tax or find out more at the website. There are also some rates reliefs available. You can find out more about those here:

  1. Health & Safety

When you become self-employed, it will also become your responsibility to make sure that your working environment meets health and safety requirements. You can find out this information from your local Health and Safety Executive.

  1. Insurance

Depending on what business you are starting, you will be required by law to take out certain types of insurance. These may include:

  • Employer’s liability insurance: If you employ other people, then this is mandatory.

  • Vehicles insurance: If you use a vehicle for business purposes, then it must have the appropriate insurance. For example, using your personal car that is privately ensured for business use, would invalidate your insurance.

  • Public liability insurance: If your business is accessible to members of the public, this insurance will cover you should anyone get injured or have property damaged while on your premises.

  • Premises insurance: This will cover your property and is something you will need even if you work from home and already have private premises insurance.

  • Contents, stock and materials insurance: This will cover your business assets within your workplace should anything happen. Again, if you work from home you will need the appropriate business policy for this.

  • Health and accident insurance: Should you become unable to work because of an accident or sickness, this will pay you a regular income or lump some to protect you from financial difficulties.

  1. Pensions

If you have met the contribution conditions, then as a self-employed person you would be eligible for state retirement pension.

You could also consider contributing to your own private pension.

If you are interested in starting up your own business, visit our registration page to apply for or register your interest in obtaining a start-up loan to get your business idea of the ground.

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