What You Need to Know When Going Self-employed?
Going self-employed can be a rewarding and liberating experience, but it isn’t without its own unique set of risks and challenges. There are numerous requirements and regulations to be aware of, and it’s important to do your research before taking the plunge and becoming your own boss. Here’s what you need to know if you’re thinking of going self-employed.
Choosing the Right Structure
One of the first decisions to make when going self-employed is which structure to go for. Self-employment encompasses everything from sole traders, partnerships, and companies, to charities and co-operatives. Each structure has its own benefits and drawbacks and it’s important to research each one to determine which is most suitable for your particular circumstances.
Sole trader: As a sole trader, you alone own the business and all profits and losses are directly attributed to you. You do not have the protection of limited liability and you’re responsible for all debts accrued.
Partnership: This type of business is owned and managed jointly by two or more persons. All partners are jointly and ‘severally’ liable for debts and obligations incurred. This means that each partner is individually responsible for the obligations of the business.
Company: As a company, you are considered as a ‘separate’ legal entity, meaning that any losses and debts accrued go to the company and not to the individual directors or shareholders. Creditors can only chase the company itself and not the people associated with it.
Charities and co-operatives: Charities have special tax exemptions and there are specific requirements when it comes to setting them up, whilst co-operatives offer a democratic structure for user and worker-owned businesses.
Registering for Tax and Scheduling Payments
Once you’ve chosen the structure of your business, you’ll need to register for taxes and set up a payment schedule. As a self-employed individual, you’ll pay taxes across three main areas:
Income Tax: When you’re self-employed, all the money you make is subject to income tax. Depending on how much you earn, you may owe significant amounts to HMRC.
National Insurance: As a self-employed individual, you must pay contributions to the National Insurance fund.
VAT: Value-added tax (VAT) is a tax you must pay if you’re likely to make more than £85,000 in a 12-month period.
Once registered, you’ll need to make sure you schedule payments by each quarter and keep on top of your records to ensure you pay the right amount of tax. HMRC also offer helpful reminders and guidance on the assets available to make sure you don’t miss any payments.
Organizing Your Finances
Organizing your finances is one of the most important aspects of going self-employed and you should do this before pursuing any business activity. Get into the habit of tracking your income and outgoings as well as setting aside money for taxes and other costs. HMRC also offer helpful services such as the tax free allowance tool, business tax amendments, tax calculator and record keeping support to help you.
Creating a Business Plan
Good businesses of any size need good planning, and creating a business plan is essential if you’re going self-employed. It should include details on how you’ll manage cash flow and any debts, as well as writing down your goals and objectives. Planning helps you to identify risks and threats to your business while also setting you up for future successes.
Marketing Your Business
Getting your business noticed is vital if you’re to make sales and attract customers. Once you’ve chosen your platform and created an eye-catching logo, write up a well-defined marketing plan. This could include:
Pre-launch: Make sure you plan ahead by setting up a website, creating social media pages and group discussions, and blogging on well-regarded sites.
Paid advertising: Consider which channels and platforms you’d like to target. Social media, search engine ads and pay-per-click are all great ways to reach a larger audience.
Networking: Attend local events and conferences wherever possible, and build strong relationships with other businesses and customers.
Free advertising: Set aside some time to identify potential partnerships, submit content to directories, and utilize local press and radio.
Landing the Right Contracts
A big part of running a self-employed business is finding the right contracts. Start by looking at industry contacts and reaching out to them either through cold lists or through a referral. In terms of the contracts themselves, it’s important to hire a professional attorney to draw up the details due to the complexity of the legalities.
Staying Compliant
Finally, remember to stay compliant when running a self-employed business. This means adhering to industry regulations, the law, and any specific business requirements. You should also make sure you’re aware of all financial terms and conditions, due dates, and return policies. You should also know what your employer rights and responsibilities are and how to stay safe in the workplace.
Going self-employed can be an amazing experience, but it’s important to go into it with your eyes open. Make sure you do the right research when deciding the most suitable business structure and registering for taxes. Additionally, get into the habit of keeping records of income and expenses, and devise a business plan and marketing strategy. Finally, find the right contracts and stay compliant with all applicable regulations.
