If you have recently decided to enter self-employment, the probable reasons why are clear. Being self-employed, you won't need to spend money on commuting, while your hours can also be much more flexible than in a standard 9-5 job, The Telegraph points out.
However, novices to the world of self-employment could run into various issues that can be avoided if more care and attention is exercised. Here are some potential traps to watch out for.
Are you really self-employed?
Your employment status can have tax implications; however, before you can discern what they are, you need to assess whether or not you actually are self-employed.
You might consider this a simple check. However, it can be surprisingly complex if, to cite one example highlighted by the Money Advice Service, if you are employed in one job while also self-employed in another. So, how can you find out your employment status?
Fortunately, you could use the Employment Status Indicator on the HMRC website. This tool will let you anonymously answer numerous questions to help you learn your employment status.
Tell HMRC about your self-employment
If you have only just become self-employed, you should register as such with HMRC. Bytestart.co.uk cites the "general advice" that you ought to do so as soon as you embark on your self-employment work. In any case, you must register by 5 October following a tax year for which you will file a return.
Here, keep in mind that each tax year starts on 6 April and finishes on 5 April the subsequent year. You might need to pay penalties if you end up registering after the deadline.
What tax and National Insurance will you need to pay?
As a self-employed person, you might have to pay both National Insurance contributions - often dubbed in abbreviation as NICs - and income tax. Those NICs would include Class 4 NICs, which are calculated on the basis of your profits, and Class 2 NICs, which are instead charged as a flat rate.
You might need to keep making these payments in a timely manner to remain eligible for benefits like the Basic State Pension, Bereavement Benefit and Maternity Allowance.
Could you benefit from using the SEIS scheme?
When setting up a new business, it can often feel like lots of money is going out the door and very little is coming back. This can understandably be frustrating, but you can't escape the fact that, if you want your company to get off the ground, it can require a hefty injection of money.
Fortunately, there are means of raising money for a startup - and those techniques include utilising the Seed Enterprise Investment Scheme. This is a venture capital scheme which can hand a very generous tax break to an investor who chooses to put money into your business.
If you want to apply for SEIS, you could get help in doing so from the cloud accountancy firm Accounts Lab, which has expertise in helping businesses to obtain SEIS advance assurance.