Being your own boss is on the rise with 15% of the working population being self-employed. Self-employment is highest between the ages of 45 and 54. Guiding yourself through the red tape and your obligations as a self-employed worker can be daunting. What are the 5 most common questions we receive from start-up businesses?
1. Self Employed or a Limited Company?
For most new businesses starting out being self-employed is the best option to test the water. If your business has a degree of risk involved then operating through a Limited company can be advantageous and potentially protect your home or other personal assets.
There can also be tax savings by operating through a Limited Company where profits are higher.
2. VAT Registered?
Firstly, if your sales will exceed £85,000 then you will have to register for VAT. You can also opt to voluntarily register for VAT. Mainly this will be if you sell to other businesses who are also VAT registered. In deciding whether to register for VAT you should also consider the regular administrative requirements.
3. Do I need to set up a separate bank account?
Whilst trading as self-employed there is no legal requirement to operate through a separate bank account. It does however simplify matters significantly if a separate bank account is used which includes all income and expenditure of the business. Fines for incorrect record keeping can total £3,000 so being able to evidence income and expenses is important.
4. What year end should I have?
The majority of self-employed individuals will have a 31 March or 5 April year end which are effectively treated as the same for UK tax purposes and represents the fiscal year end so is often considered the easiest use.
However, when profits are likely to increase then there is a real advantage in adopting a different year end, 30 April can be very popular when this occurs. You should take advice as this can delay your tax liabilities significantly and provide you much needed cash-flow in the early years of trading.
5. What expenses can I claim?
Unfortunately, there is not a one size fits all answer to this. You are able to claim expenses which have been incurred wholly and exclusively in connection with the business. This can encapsulate the direct expenses of the business together with more ancillary ones such as the use of your home, car, laundry services all depending on what business you are running.
If you are starting in business or considering doing so and would like some advice on the mechanics of being self-employed, including your financial obligations please get in touch. Call Mandy on 01473 659 777 or e-mail firstname.lastname@example.org to arrange a meeting.