How To Set Up As Self-Employed
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Making the move to self-employment is exciting. But after you’ve decided whether to set up as a limited company or sole trader, what happens next? Here’s how to set up as self-employed, including the ongoing legal obligations that you need to be aware of.
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Setting up as a sole trader is a popular choice for many who make the move to self-employment. It’s incredibly easy to start working as a sole trader, with very little in the way of paperwork. In fact, you’re not required to fill in any paperwork until after your first tax year of trading.
If you’ve decided that working as a sole trader is the right move for you, here’s how to get started:
Choose the name you want to trade under. This can be either your own name or a business name – the choice is yours and might depend on factors like the type of business you’re running and whether you have a brand or not.
After this, you’ll need to work out what records you’ll need to keep. Again, this depends on the type of work that you do, but will usually include invoices, payments and expenses.
To work as a sole trader, whether partially or fully, you have to register for Self Assessment, the HMRC system used to collect income tax. You must register for tax and National Insurance within the first six months following your first year of being self-employed. For example, if you start work on 1st November 2022, your first tax year of self-employment ends on 5th April 2023. You must therefore register as self-employed by 5th October 2023.
After registering for self-assessment (which is relatively quick and easy), you’ll be given a unique tax reference number (UTR). This is what you’ll use to pay tax once a year. Reminders will be sent out by HMRC, but it might be a good idea to make a note somewhere else because the consequences of forgetting to pay tax can be serious.
As a self-employed individual, you are responsible for your own taxes and wages. You must report your net income and tax liability in your annual tax return. In an employed role, this is usually deducted automatically from wages, pensions and savings by your employer, so the change can take some getting used to.
The deadline for paying tax is 31st January each year when you’ll be paying tax on your profits from the previous tax year. For example, tax on profits earned from the 6th April 2022 – 5th April 2023 must be paid by 31st January 2024.
From here, you’re ready to go out and find your first client. After that, it’s a case of maintaining your ongoing requirements and responsibilities.
Your main responsibility when working as a sole trader is to ensure that you file your Self Assessment tax return on time. To do this smoothly, it’s advisable to keep records of all sales and purchases throughout the year. This will save you a lot of time and stress when it comes to doing your tax return.
To complete your tax return, you’ll need the following information:
It might be worth using an accountant or personal tax specialist to help you complete the return, especially if it’s your first year doing so. If you’re struggling to find a reputable partner, MyHA can help match you to a specialist who will gladly guide you through the process. Just drop us a message or give us a call, and we’ll get you on your way.
Owning a limited company comes with a lot of responsibilities. You’ll need to produce annual accounts, pay corporation tax, pay PAYE and NIC on any salaries, and pay VAT on the net supply of any goods and services you incur during each VAT period.
Hiring expert help will make meeting your requirements as a business owner a lot easier. Using a specialist firm to process monthly payroll isn’t usually a huge cost and will take a lot of the stress away. An accountant will simplify the process of producing year end accounts, VAT returns and corporation tax calculations.
Whether you reach out for external help or attempt to the business’ legal requirements on your own, accurate record keeping is vital. For around £30 a month you can use a basic accounting tool, such as SAGE or Xero, which will make it easier to keep all of your sales and purchase records in order.
Keeping the right records throughout the year will minimise any risk of unpaid taxes and help you to manage a smooth cash flow. Knowing which forms to complete and when to complete them can be daunting though, which is why having the right advice and support can be invaluable.