Becomming Self-Employed


Even though you may not see it this way when you are registering to become self-employed you are effectively setting up a new business and this means that you will need to consider a business structure.

Usually the simpliest business structure to choose is setting yourself up as a sole trader which we will have an indepth look at, however you may also decide that setting up a limited company is the best structure for your business.

Setting up a Limited Company

If you are starting to work as a limited company there are several requirments which you must adhere to these include registering the company with both companies house and HMRC (for corporation tax purposes) and you will also must draw up a memorandum of association, many people setting up limited companys employ the services of a solicitor to help with the legal requirments.

Setting up as a sole trader

When registering as a sole trader to become self employed in the UK here are some tips and advice:

•  Inform HMRC as soon as possible so that they are aware that you are paying your tax via self-assessment and you will be paying your class 2 and class 4 (if necessary) national insurance contributions yourself. To register as self-employed visit the website (here)

•  Whilst you are not required to open a business bank account it may be good practice in order to keep track of your business’ finances (best business accounts)

•  Ensure that you have a process to record your business income (through invoices etc.) and evidence of your business’ expenditure including any relevant receipts.

•  If you are going to be working from home you should establish if there are any restrictions mentioned in your mortgage or tenancy agreement which prohibt businesses being ran from the property.

•  Check if you need to sort out insurance for your business, the most common types of insurance are professional indemnity insurance and public liability insurance. If you are going to be employing other people you are also legally required to have employers liability insurance. (What insurance do I need?)

• When you begin working for yourself you must be aware that you will no longer have the added benefit of having a workplace pension and you wont have your employer contributing to a pension. Having said this you may want to look into setting up a private pension so that you’re still putting money aside for retirement.

Paying your tax once self-employed

The amount of tax (and NI) that you’ll be required to pay is determined from your businesses profit during the tax period (usually running from April to April). Certain business expenses can be subtracted from the income from the business in order to calculate your tabale profit which you then pay tax on.

Whether you are self-employed or employed you have a tax-free allowance, which in 2017-18 means that you can earn £11,500 over a tax year before you are required to pay any tax.  You will be placed on a basic tax rate (20%) on income upto £45,000 (for the tax period), if your profits are over that amount you will be placed on a higher tax rate (40%) and on profits above £150,000 your tax rate will be 45%.

Being self-employed and working for a company

If you are only working for youself on a part-time basis and are continuing to work for a company for the rest of the time you’ll pay your tax through both PAYE and self-assessment.

You could also be self-employed but only ever do work for one company, however HMRC may want to ensure that the company is not just claiming you work as “self-employed” to avoid their tax/national insurance obligations.

Getting a mortgage when self-employed

One of the majoy disadvantages when becomming self-employed is it can prove trickier when it comes to getting mortgages or rental agreements, however it is still possible.

When you are employed usually the mortgage lender will require your payslips and bank statements to establish your income. When you are self-employed the lender will also ask for business bank statements and copies of your self-assessment tax return (including the SA302), which can be obtained online either by yourself or via your accountant.

The lenders usually need 2-3 years worth of your accounts and self-assessment information (which may mean it will be difficult to obtain a mortgage if you’re newly self-employed) and they will then take an average of your income to determine how much they are willing to lend you.

Hopefully these helpful tips and advice will help you when becomming self-employed, if you require further advice and information feel free to contact me Here.


1 comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: