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The self-employed workforce has been on the rise for a few years, but this has now been accelerated by the pandemic. Whether this is people taking the time to reflect and wanting to take greater control of their career or a decision as a result of losing a job or requiring extra income, there are many perks to self-employment but it is vital that people know the proper steps that need to be taken. Read on to find out what key steps you need to take if you plan on becoming self-employed.
1. Market Research & Business Plan
Much like any new business, it is important that you first carry out thorough market research and write a business plan. Market research allows you to build a business that can succeed, and a business plan will help to guide you through these challenging early periods, plus it can also be helpful for securing funding if this is a stage that is required.
2. Register as Self-Employed
When it comes to forming the business, need to register as self-employed with HMRC and complete a self-assessment tax return each year as you will be responsible for paying your own income tax and National Insurance Contributions. If your business has an annual turnover of £85,000 or more, you must also register for VAT.
3. Arrange Insurance
You may be required by law to have some form of insurance depending on the area that you work in and there will be other optional types of business insurance that are worth considering. The pandemic has proven that the unexpected can happen and there are many threats to a business, so having protection in place is important and will provide peace of mind.
4. Separate Business & Personal Finances
One of the biggest mistakes that people make when it comes to starting as self-employed is failing to separate their business and personal finances. This is problematic because it can make it much harder to manage your company (and personal finances), plus it often results in using one for the other which is never a good idea. This is why you should always open a separate bank account and always remember to keep the two separate. Additionally, remember to put your tax money aside each month (this could be kept in premium bonds or a savings account).
5. Maintain Accurate Financial Records
Leading on from this point, you also need to make sure that you maintain accurate financial records and have a system in place from day one. This is important because it makes it much easier to get an overview of your financial situation and find ways to make improvements, but it is also important in terms of taxation. You need to be able to file a 100% accurate tax return at the end of every tax year and any mistakes here could be costly. You could either keep your own books with accounting software or alternatively use the services of an accountant.
These are 5 of the main steps that someone needs to take if they decide to become self-employed. It can be a great journey, but it is vital that you get set up in the proper manner and have everything above board from the start.
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