Many people have often dreamed of starting a business, but they also find it daunting. There’s the long working hours, irregular income, or even having to do their own accounting. It might seem too much. But becoming self-employed has its advantages. You’ll be working for something that you are passionate about. You can have control over your work hours and your income. You will have time for your family and be your own boss. It has more versatility compared to choosing employment under someone else’s supervision. So, it’s time to start your business now. You can be in a Partnership or become a Sole trader, for instance.
What are the different self-employed businesses?
Based on Statista, there are 31.67 million people employed in the United Kingdom. Compared to last year, which is 31.45 million, there has been quite an increase in the employment rate.
By checking these statistics, much of the rise in employment is because of self-employed businesses. These businesses come in different forms.
A) Sole trader
A Sole trader is one of the most simple business structures. For this reason, many self-employed people prefer to use this because it is convenient to set up. All you need to do is to register as self-employed with HM Revenue & Customs (HMRC).
As a Sole trader, you will run your own business as an individual. You can get to keep any of your after-tax profits. A key thing to consider is in this business structure your personal and business assets aren’t separate. If you have debts connected to your business, you will be responsible for those personally. You can get insurance if you want to lessen the risk.
In Partnership, you go into business with one or several partners. You and your partners will then have a shared responsibility for the business. In this business structure, it is important that a Partnership agreement exists. The contract determines everyone’s share in the profits.
All the members of the agreement shall be equally liable in a Partnership. This refers to how all partners will be responsible for any debts, either in full or individually.
The members will need to give a Self Assessment tax return for their own share of the profits. For the nominated partner, they will have to send a Partnership of Self Assessment for the business.
C) Private Limited Company
For Private Limited Companies (Ltd), they will have their own legal entity. This means they are separate from the people owning and operating the business. If you want to start with this business structure, you must incorporate it with Companies House. It must have a proper business name and an address. The company will need to submit its annual accounts to Companies House and a tax return to HMRC.
Private Limited Companies will have a director who is often the person who started the business. Directors will run the company. Aside from the director, there must be at least one shareholder or member.
D) Limited Partnership
In a Limited Partnership, there must be at least one general partner and one limited partner. The former has the duty of running the business and handling the debts. The latter is only liable for the amount originally invested in the business.
E) Limited Liability Partnerships
In Limited Liability Partnerships (LLPs), you’ll find a mixture of a Partnership and a Limited Company. Similar to Partnerships, several people can start the business. Like Limited Companies, it needs registration with Companies House. It must have an appropriate name and address, and at least two shareholders.
You can consider that a Limited Liability Partnership has its advantages and disadvantages. This is because of its combined structure. One feature to note is that the partners’ liability for any debts depends on the amount of investment.
What do you need to do to start a business and become self-employed?
There are a lot of things to consider when becoming self-employed or starting a business. You need a guide to understand the basics and how you should begin with your business journey.
1) Determine your budget.
Before beginning with anything else, you need to compute your budget. Identify all the required costs to get your business off the ground and become operational. These expenses might include renting a business location, purchasing a company vehicle, and more. You need to budget your expenses. You should know how much of your own money you can afford to invest. If you don’t have enough budget, you can consider getting a business loan.
2) Create a business plan.
You must make a business plan. It will help you develop ideas and set out your objectives. By using a plan, you’ll figure out what you want for your business. Another benefit of business plans is that you can present it to potential investors or banks. If you want to raise money for your business, you need to impress them with a well-rounded plan. You need to be transparent and realistic about your business’ costs and earning potential.
3) You must remember to pay for your taxes.
When you set up your own business, you will need to register for Self Assessment. This is so you can pay your own taxes. For self-employed people, they pay taxes and National Insurance on self-employed earnings in arrears. So, this means you’ll have time to prepare for substantial bills. In limited liability partnerships or private limited companies, you will need to pay for corporation taxes.
4) You must register for Value-Added Tax (VAT).
Businesses that are VAT registered, charge VAT on the services and goods they supply. You should register for VAT if your business has a taxable turnover of at least £85,000 or more. But it doesn’t mean that businesses who have a turnover below this cannot register. Some businesses might benefit from registering.
5) Maintain Record-keeping.
First time self-employed people need to understand record-keeping. This is how you will keep track of what you are charging your clients and any business-related expenses. These records include receipts, invoices, till rolls, and bank statements. There’s no requirement to send records when you submit a tax return. However, you must keep them for five years.
A tip is to use a cash basis accounting as a sole trader or partnership. You must also have a combined annual turnover of less than £150,000. This accounting lets you pay tax and claim expenses the moment the money leaves or enters your account. This is important since it could change the year you pay tax on an income.
6) You should consider an accountant.
The choice is up to you on whether to hire an accountant. For businesses that are brand new, you might manage it yourself in the short term. But hiring an accountant is crucial. You’ll need proper advice on tax planning and offsetting expenses against income. Choose an accountant from a relevant trade body such as the Institute of Financial Accountants (IFA).
10) You can use bookkeeping software.
If you want to do the bookkeeping yourself, to make it easier for you, use bookkeeping software. This will automate your records and make it easier to handle. There are various commercial software suppliers you can check out. You can try out those listed on the HMRC website here.
11) Get personal and business insurance.
An absolute must for operating your business is to have insurance. There is a variety to choose from. For instance, if you use different equipment for your business, you can get those insured. Besides that, since you don’t have an employer to depend on, you can get personal insurance.
Starting your own business and becoming self-employed might intimidate you at first. But the benefits hold more weight than the risks. You can even make the process easier by getting our help at MachFast. We understand that forming your own business requires a lot of time and patience. That is why, through our app, you can get it done in a matter of minutes. With just a few clicks, you’ll be able to start your business. As the first UK company formation app, we’ve always advocated for fast services to new companies. With our help, there won’t be any need for complicated paperwork. The MachFast app can help you form a company and open an account at the same time. If you want to download the app, Android users can download it here. For iOS users, you can download it here. Our service providers, Companies House and CashPlus, will manage the work for you. So, you can start your business quickly.