Making the move to self-employment carries a huge set of implications beyond those that you’ve probably already spent weeks mulling over (from job security to whether you’re going to work at home, rent an office or hotdesk somewhere); as well as doing whatever it is you do best, you suddenly have to start thinking about things like filing a self employed tax return and taking care of your own accounts.
Self employment tax is a different beast to that of people who are working for someone else; responsibility for tax and National Insurance contributions suddenly lie with you, which (if you’ve never run a business before) can feel pretty serious. Of course, it’s only human to delay doing stuff that feels serious because it feels like any mistakes will have bigger consequences.
However, it’s inadvisable to delay signing up to submit your self-employed tax return, as you may end up being penalised by HMRC if you don’t let them know you’re self-employed as soon as possible. Boo!
We’ll get into this more elsewhere on the site, but there are a few different ways you can set up as self-employed;
The different approaches to being self employed
- Sole Traders: You run your business as an individual (but you can still employ other people). This is what most people understand as being ‘self-employed’. You keep all your business’ profits after paying tax on them.
- Partnerships: In a business partnership, you still work as self-employed individual but all partners share responsibility for the business. Profits are shared between partners, with each partner paying tax on their share. All involved must submit self-assessment tax returns, pay National Insurance and income tax etc, but a nominated partner must also submit a tax return for the partnership as a whole.
- Limited Companies: Your salary and dividends are taken into account.
So what exactly does self-employed tax involve? As a self-employed person, you’re responsible for submitting the following things to HMRC.
- Self Assessment
- National Insurance
- PAYE (if you have people working for you!)
And that’s it! There’s a lot more information about deadlines, records etc on HMRC’s website, but the process is designed to be simple enough that self-employed people can file tax returns without the help of an accountant.
KashFlow offers a Self Assessment report that can provide you with some of the figures for your Self Assessment tax return. From within KashFlow, go to the Settings menu then select Tools & Reports > General Reports > Self Assessment. For the other figures required by self-employed tax returns, not to mention ensuring that things like bank accounts all reconcile nicely, we suggest employing the services of an accountant!