Are you weary of the daily grind, the perpetual commute, and the lack of control over your time? It may be time to consider self-employment. In this blog, we highlight how to become self-employed. Becoming self-employed can provide a wonderful sense of freedom, flexibility, and the opportunity to pursue your passions. However, it’s not without its challenges. It requires hard work, dedication, and a well-thought-out plan.
Here’s a guide on how to become self-employed. These steps will help you take the leap to becoming self-employed and join the 4.23 million self-employed workers in the United Kingdom:
The simplest way for most new freelancers to get started is by registering as a sole trader. As a sole trader, you can bill clients and keep all the profits from your business after paying taxes.
You only need to register as a sole trader once you earn £1,000 or more from self-employment in a tax year. However, the registration process is free and relatively straightforward, so it might be wise to register when you launch your business to be prepared for the future.
The first step on becoming self-employed is to inform HMRC that you will be paying taxes through self-assessment. You can do this by registering for self-assessment via the government’s online portal.
Here’s what you’ll need to do:
1. Create a Government Gateway ID and password.
2. Register for self-assessment online.
3. Wait to receive your Unique Taxpayer Reference (UTR) by post.
The government form linked above will guide you through these steps, allowing you to create a Government Gateway ID if you don’t already have one.
When starting your freelance business, one of the first decisions you’ll need to make is whether to use your own name or create a separate business name. If you opt for a business name, there are specific rules you must follow:
1. Your business name cannot include terms like “Ltd,” “Limited,” “LLP,” or any wording that implies it is a limited liability company if it isn’t.
2. The name must not contain any offensive language.
3. It cannot be identical to an existing trademark.
4. You should avoid names that suggest a connection to the government or local authorities, and it cannot include “sensitive” words unless you have obtained permission.
You can search for a trade mark here
For a list of sensitive words that require permission to use, you can visit the government website.
While it’s not mandatory to have a separate bank account for your business, doing so can help you keep your personal and professional finances distinct, reducing confusion.
If you decide to open a separate bank account, ensure it has the features you need. For instance, if you frequently work with international clients, verify that your bank doesn’t charge fees for receiving international transfers. Consider banks such as Mettle, Tide and Starling which offer a free bank account tailored for freelancers.
After successfully registering as a sole trader, you have several responsibilities to fulfil:
1. Maintain Business Records: Keep accurate records related to your business activities.
2. Submit an Annual Self-Assessment Tax Return: File your tax return each year to report your earnings.
3. Pay Taxes and National Insurance: Ensure you pay the appropriate taxes and national insurance contributions based on your income.
4. Register for VAT: If your income reaches the VAT threshold, you must register for VAT.
Staying on top of these responsibilities is essential for compliance and the smooth operation of your business.
As a sole trader, it’s essential to maintain records of your income and expenses. While you don’t need to submit these records to HMRC, having accurate information will help you when you file your tax return. HMRC may also request to review your records if you are audited.
For more details on the records you need to keep and the duration for which you should retain them, please visit the government website.
As a freelancer, you must submit a self-assessment tax return each year, allowing HMRC to determine the amount of tax you owe. The deadlines for submitting your tax return are as follows:
– Midnight on 31st October for paper submissions
– Midnight on 31st January for electronic submissions
Your tax return should include information about your income from the previous tax year. For example, if you submit your tax return online on 31st January 2023, it will detail your earnings from the 2021–2022 tax year.
HMRC will inform you of the amount of tax you need to pay based on your tax return. The deadline for paying tax coincides with the deadline for submitting tax returns, which is usually midnight on January 31st. Most self-employed individuals also pay National Insurance contributions through self-assessment, with two different rates depending on your profit level.
Since tax is not deducted automatically from your income like it is for employees, it’s wise to set aside a portion of each payment you receive to cover your tax obligations. You can find detailed information about your potential tax liabilities on the government website.
If your turnover exceeds £85,000, you must register for VAT. You may also choose to register voluntarily if your income is below this threshold and it benefits your business.
I hope this article on how to become self-employed helps you on your journey to becoming a freelancer.
