So, you’re taking the leap and deciding to go self-employed, go you! Here’s everything you need to know before getting started.

1 – Open a business bank account

It can feel like a big step. You don’t feel like a ‘business’ after all, you’re just a person trying to do your job. However, it’s essential as a sole trader. 

Even though your business income can be taxed alongside your personal expenditure, it’s still essential to keep business finances separate from your personal finances. 

Opening a separate business bank account is the easiest way to do this. Most business bank accounts have small fees (usually £6-£10 per month), with some transaction fees as well. 

You can opt for high street banks like Natwest, HSBC or Lloyds or challenger banks like Tide, Monzo or Revolut. Big name banks like Natwest offer 12-18 months free business banking for new businesses, but most techy challenger banks offer free business banking. 

The former could be a great choice if most of your banking is done online. 

2 – Register as self-employed with HMRC

We are accountants, so naturally, we are going to say this. 

As a sole trader (or self-employed person) you are responsible for organising and paying your own income tax and National Insurance (NICs). There are some pros and cons of being self-employed, and this is one of the cons. Unless, of course, you hire a great accountant like Eazitax that makes it easy for you. 

What you need to know

Important dates

You can register as self-employed with HMRC any time up to the 5th of October of the second tax year of your business. The tax year runs from the 6th of April to the 5th of April of the following year. 

If you have an accountant, they’ll be able to register with HMRC for you. When you register for a self-assessment tax return with the HMRC, you’ll get a Unique Taxpayer Reference (UTR).

Your self-assessment tax return

You are responsible for calculating how much tax you need to pay, and for completing a self-assessment tax return each year. As we’ve already mentioned, Most small business owners and sole traders will hire an accountant to take care of this all for them.

3 – Work out if you need to pay VAT

From April 2022, businesses with an annual turnover of above £85,000 must register for VAT (value-added tax). 

If you don’t currently earn this much but forecast that you are about to over the next 12 months, it’s best to register. You could be fined if you don’t register within 30 days of earning over the threshold. 

Some people register for VAT despite being under the threshold. Having a VAT number gives an air of legitimacy, having your VAT number on your website gives people the impression that you’re an established business that has their financials in order. 

You can also claim the VAT back on things you buy, which could mean worthwhile savings.

The Flat Rate VAT scheme

The flat rate VAT scheme can save you bookkeeping time, and make cash flow more predictable. It also means that you don’t have to record the VAT that you charge on every sale and purchase, like with standard VAT. 

How does it work? 

Under the Flat Rate VAT Scheme, a business pays a fixed amount of VAT to HMRC. The difference between what you pay and what you charge your customers is yours to keep. Under the Flat Rate VAT Scheme, you can’t claim back the VAT on your purchases (except for certain assets over £2,000)

To be eligible for the flat rate VAT scheme, your business must have an annual turnover of £150,000 or less. To register Flat Rate VAT Scheme, you need to make an application to HMRC.

How much is your flat rate?

The amount of VAT you pay under the Flat Rate scheme will depend on the type of business you own. Some examples include:

• Catering services pay 12.5%
• Hairdressing or beauty services pay 13%
• Computer repair services will pay 10.5%
• Hotels and accommodation will pay 10.5%

Take a look at the list of Flat Rate VAT rates on the HMRC website. 

4 – Get insured

When you operate a business, you are required to have certain insurance policies in place. The mandatory insurance policies you’ll need will deter depending on the type of business you are operating and the industry you’re in. 

You might also want to take out some non-essential insurance to protect against loss of profit or anything else you may be concerned about. 

These are the most common types of insurance for small businesses: 

• Employers liability insurance: You need this insurance If you have employees, even if it is just part-time. You are legally required to take out employers liability insurance and could face a significant fine if you don’t. When you take the insurance out, you’ll need to display your certificate of insurance so that employees can read it.
• Public liability insurance: This is especially important if customers visit you on your premises or if you work on customers’ property. It will protect you if a 3rd party injures themselves, or if you cause damage to a client’s property.
• Professional indemnity: This covers you if a client sues because they are unhappy with your work or the service you’ve provided.
  

5 – Choose a practical way to keep financial records

It’s no one’s favourite job, but when you start your own business, you need to keep on top of your books (or at least make sure someone else is). 

HMRC won’t be forgiving. From when you start your own business, you are expected to keep clear records of all transactions. This will keep the authorities happy, and will make running a business easier, as your finances will be organised. 

This is where having an accountant comes in. When you sign up with Eazitax, we’ll discuss with you a practical way to keep everything in order. Some of our clients choose an easy-to-use app, others use our printed-out sheets. Either way, it has to be a way that is easy for you when you are on the go. 

When the time comes to file your tax return or submit a VAT return, you’ll be able to pass your information to us (or your accountant) who will take of everything for you. It’s important to set up a simple system to have all of your financial transactions and info in the same place. 

This makes sure you can focus on keeping your business running, and we can take care of your tax stuff. The less organised you are, more time you have to spend running around like a headless chicken.