Financial experts often say in their guide for self-employed individuals that working for yourself is rewarding, which means you can follow your dreams and passion.
If you don’t dream big and work hard to fulfill your dreams, someone else will recruit you to fulfill theirs, which may not be fruitful.
However, when you think of leaving a stable job and starting your own business, one question troubles you; is self-employment the right option? Here is a guide t being self employed that answers most of your queries.
Table of contents
● What is self-employment?
● How to decide if self-employment is right for me?
● Checklist for going self employed
● Can I set up a business as a sole trader?
● 5 financial planning tips for self-employed
What is self-employment?
If you are looking through a self employed guide, you must understand the inner meaning of self-employment.
It means you are solely responsible for managing and running a business and is classed as a ‘sole trader’ by the HMRC. You don’t receive a salary at the month’s end but a profit from selling goods and providing services.
While running a business as a self-employed, you are responsible for
- Taking responsibility for business failure and success
- Dealing with several customers at a time
- Deciding on how, when, and where to work
- Hire people at your expense
- Provide sufficient equipment to do the work
- Responsible for finishing unsatisfactory work
- Charge a fixed price for your work
- Sell goods and services to earn profits
You can work as self-employed even when you work for someone else. How?
For example, you work for a company from 10 a.m. to 5 p.m and use the remaining hours in your business. Apart from being a sole trader, you can become a partner in a partnership business or set up a limited company.
How to decide if self-employment is right for me?
Self-employment is not as easy as it sounds unless you know how to handle different business scenarios or seek professional advice.
There remains constant stress on expanding your business, making the right financial decisions, managing cash, ensuring the correct tax payments, following government regulations, and so on.
Here are a few questions you must consider to understand your self-employment eligibility for self-employment
- Are you pre-planned about how to get customers?
- Do you have some savings to set up a business?
- How will you cope with a situation of little or no income?
- Are you confident about managing business affairs?
- Have you thought about the impacts of losing your employee benefits?
There are a few other things to consider, like having a personal space or needing to rent a property, which goods and services are best in the current market, and so on.
Checklist for going self-employed.
Before you start conducting business, you must go through the self employed guidelines. The first step is to business set-up is to decide on the business structure.
If you are establishing a limited company in the UK, you should register with the Companies House, draw a memorandum of association, pay corporation tax, etc. However, the checklist for sole traders is:
- Informing HMRC that you’re establishing a business as a sole trader
- Set up a business bank account
- Establish a business plan
- Decide your accounting process and bookkeeping methods
- Check all your agreement
- Purchase an insurance
- Understand the self employed tax guide
- Pay yourself and save for future
- Seek professional advice
Can I set up business as a sole trader?
You must set up as a sole trader as you earn more than £1,000 from self-employment and tell the HMRC that you will pay taxes through self-assessment. Your responsibilities include
- keeping business transaction records
- Sending a self-assessment tax return every year before the deadline
- Paying income tax on profits and Class-2 and Class-4 National Insurance.
- Register for VAT if your turnover exceeds £85,000 in a year.
You can register a business name, logo, or trademark to stay unique in the market. Anyone copying your name and logo can be legally charged for infringement.
5 financial planning tips for the self-employed
- Pay yourself
Paying yourself is very important, even when you are not an employee but a boss. You have a personal life away from business, including expenditures. To fulfill your daily needs, you need to have a regular source of income. Fix a particular amount from business income as your salary and credit it to your account.
- Create an emergency fund
Check out any guide to being self employed, and see how financial experts suggest creating an emergency fund for business. It pools money for emergency purposes. For example, you missed your three-year tax payment, and HMRC asks you to pay them soon, but you are out of cash. An emergency fund provides you with the required money at such times.
- Save for retirement
Your growing age becomes a barrier to performing business energetically. So, every business owner must have a separate saving from their initial years to secure money after retirement. The earlier you start saving, the better it is.
- Buy health and life coverage
The journey of a business owner is full of uncertainty. There is a thin line between what you and your business own separately, and you may need to borrow money to fulfill business affairs. Plus, no employer above you worries about your health and life, so get insurance.
- Tax planning
Go through a tax guide for self employed and see how different it looks from other employees. You can claim numerous tax deductions on your tax return, reducing your bills. It includes allowable expenses, income support or working tax credit, housing benefit, universal credits, business grants, etc.
A self-employed individual must submit their self-assessment tax return to the HMRC under specific conditions. To understand your requirements, look into a self-assessment guide for self-employed.
Going self-employed means you have more flexibility and control over your work style, commitments, and responsibilities. Though there are numerous advantages of self-employment, there are disadvantages as well.
To keep your business safe, learn financial management, look into self-employed guide uk, and seek professional advice on any business affair that is not your cup of tea.