Set up and register as self-employed |
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| Introduction |
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| Setting up as a self-employed sole trader is the simplest and quickest way to start a one-person business. There is minimal paperwork and no registration fees; however, you must register as self-employed. Record keeping and accounting is straightforward, and there are the benefits of being your own boss. |
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| This guide explains the consequences of, and the legal requirements for, setting up as a sole trader. The checklist will help you make sure that you have put your business on a proper legal footing. |
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Before you start
Anyone can set up in business as a sole trader, although for certain types of work you may need a licence or permission from your local authority. Restaurants, childminders, cab drivers and street traders, for example, all need to have a local authority licence. Your qualifications and business premises may be inspected beforehand to ensure you comply with regulations. |
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Working from home
You may need to get planning permission to set up a business at home. For example, if your business could cause a nuisance to your neighbours, or if you intend to do any building work to adapt your home. If in doubt, contact the planning department of your local authority. |
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| Bear in mind that there may also be restrictions in the deeds of your property or, if you rent, in the rental or lease agreement. |
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Choose a name for your business
Your trading name should not be the same as - or too similar - to that of a business that already exists. Be careful that it does not contain words that people might find offensive or misleading. A good tip is to make your name unique – perhaps be adjoining the works together for example. That way, you can register it as a trademark and ensure it is protected. For example ‘Charlie’s Commercial Chickens’ will be more difficult to trademark than ‘CCCHiks’. |
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Tax matters
You will have to pay income tax on any profits. You must fill in a self-assessment tax return each year, detailing your income and expenses. |
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| Make sure you register as self-employed with HM Revenue & Customs (HMRC) as soon as you start up in business on your own. If you fail to do this within the first three full months of becoming self-employed, you may have to pay a penalty of £100. |
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National Insurance
If your annual profits are over a certain amount (£5,435 for 2008/09) you will also have to pay Class 4 NICs. You pay these along with your income tax - the amount you have to pay is calculated from your self-assessment tax return. |
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Employees
Sole traders can take on employees. If you do, you will need to collect income tax and NICs from them and pay these to HMRC. You will therefore need to operate a PAYE (Pay As You Earn) payroll. |
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Keeping records
You must keep all the financial records you will need to fill in your tax returns. |
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The construction industry
Special rules apply to subcontractors in the construction industry. |
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Self-employment status
If your work comes from more than one source it is possible to be employed in one or more jobs - with your employer deducting tax and National Insurance - and self-employed in others. |
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| If you're not sure whether your work counts as self-employment, ask yourself these questions: |
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- Do you have the final say in how the business is run?
- Do you risk your own money in the business?
- Are you responsible for meeting the losses as well as taking the profits?
- Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves?
- Are you free to hire other people on your own terms to do the work you have taken on? Do you pay them out of your own pocket?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
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| If you answer "yes" to most of these questions then you are probably self-employed already, and should notify HM Revenue & Customs (HMRC). |
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| Checklist: setting up as self-employed |
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| In order to legally set you up as a self-employed sole trader follow these steps: |
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- Register as self-employed with HM Revenue & Customs (HMRC);
- Obtain any permits and planning permission that you may need from your local authority;
- Contact your local authority to find out whether you need to pay business rates;
- Contact HMRC to register for VAT if you expect to have turnover of more than £67,000 a year;
- Set up a financial record-keeping system;
- Put your name on all your business stationery, including letters, invoices, receipts and cheques.
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| Click to Buy : Employment Contract Template |
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| You can find links to employment documents here: Employment Contract |
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