Drive, vision and determination – you have it in abundance and are ready to take it full-steam ahead into the highly attractive world of working for yourself, but do you have the necessary knowledge to start out on the right track?
Setting up in business can be a daunting prospect filled with trepidation but it can also bring you in touch with overwhelming feelings of excitement and freedom. You’re not sure what to do next but you know that you’ve got what it takes to make it happen no matter what.
The first thing to consider is: do you intend to work alone, from home? If this is the case then starting up may not be such a precarious dream. Anybody can work from home by setting up as a sole trader, although for certain businesses you may need a licence or permission from your local authority (restaurant, child-minder etc.) and you could be liable for business rates and planning permission. However, for those of you who intend to work out of a bedroom on a computer, this will not affect you.
For example: if you are a designer working full-time on a payroll but you want to try your hand at a spot of private work, you can immediately start invoicing clients by trading under your own name (Joe Bloggs) or under a business name (Dynamic Design) but do make sure that all stationery displays both the business and trading names i.e.: Joe Bloggs trading as Dynamic Design. As long as you declare to the tax office within the first three months of trading that you intend to carry out self-employed work, there is no problem. Failure to declare within this time could mean you find yourself lumped with a hefty fine.
So what does it mean to become self-employed in this way? It’s really not as scary or difficult as you might initially think. All it means is that every year you get an A4 annual self-assessment form which you must fill out for HM Revenue and Customs, declaring all of your income and expenses and that you must make sure you pay your NI contributions. If you are in employed work too then you need to declare this income and the tax paid. All this information can be found on the P60 you receive every year.
However, the most important thing that you need to be aware of if you intend to set yourself up as a sole trader is that if the company fails and all goes wrong, YOU are liable for anything owed. If sued, you could lose your home, your car and any other assets. Therefore if you intend for your company to grow and consequently take more risks it would be advisable to set up a limited liability company. A limited company exists in its own right and this means that if the company runs into trouble it is the company, not you, who is sued and this will only be to the value of the shares you hold.
When it comes to paying tax you get until the September after year-end to send back your forms if you want the tax man to calculate what you owe. If you want to relieve yourself of pressure and get an accountant to submit your tax return, or you are brave enough to do it yourself, you get until the following January. After that the fines start racking up!
When it comes to an accountant most people immediately think pin-striped suit and… cost. However, this does not have to be the case. You’ll find heaps of people in the yellow pages, or in the back of your local newspaper, offering accounting services – usually people that have worked for years in a big company and now just do a little from home. It’s always best to contact a few and arrange a visit – they should at least give you half an hour of their time for no cost and this will give you the opportunity to check them out as well as grill them for some advice. Nine times out of ten they’re a harmless bunch!
The good thing about an accountant doing everything for you is that as long as you keep all of your receipts (anything from stationery supplies, computer costs, phone bills – even electricity!) they will do the rest. For the cost of about £90 upwards (for a self-employed person with a fairly small amount of paperwork) an accountant will do their best to bring your tax down to the minimum. What you pay them is usually recouped in this way and not only that, you don’t have to lift a finger. For those of you, like me, who bolt at the first sign of figures – this is never a bad thing.
If you’ve been wondering for a while about whether to take the plunge, now just might be the time. It really is simple and once you get started, you’ll wonder why you didn’t do it sooner!