Starting a small business means you will be working for yourself and classed as a sole trader by HM Revenue and Customs (e.g. for tax purposes).
As a result, you will need to inform HMRC that you are self-employed and follow the rules for running a business in the United Kingdom.
The primary factor that makes you self-employed when you start to work for yourself is the structure of the business.
Thus, it is important to understand what counts as trading, and what you must do as a sole trader or partner in a company.
One of the first things you will need to do, and without any unnecessary delay, is register with HMRC for Self Assessment.
At this point you might be asking yourself 'why should I go self-employed'? People have different reasons to start working for themselves for the first time.
For some, the best part is you get to 'be your own boss'. In most cases, that means you can be more flexible as to when and how you conduct your work.
Whereas, others will see setting up a business as an opportunity to command a higher salary. Of course, it will also depend on what type of industry you start working in.
But here's the kicker:
There are downsides to working for yourself too. This guide will help anyone who is planning on 'going it alone' follow the rules of self-employment.
If you are going to start trading, you will have several important things to do. The first step is informing HMRC that you are self-employed (e.g. to fulfill your tax obligations).
The next step is choosing a business structure. This will have an impact on your responsibilities for bookkeeping as well as the need for business insurance.
As a rule, HM Revenue and Customs (HMRC) will classify you as a self-employed worker, and therefore working for yourself, if you:
Note: Most of these situations also apply to anyone who is the owner of a limited company. This also includes situations where HMRC do not class you as self-employed. In this case, you would be an owner and an employee of your company.
You can be both self-employed and employed at the same time. Hence, working for an employer in the day time, and running your own business afterwards, would meet this criteria.
If you are selling goods or services, you could also be classed as a trader. As such, trading in this way means you are self-employed.
As a rule, you are trading (with any related tax implications) if you are selling items on a regular basis to make a profit, or (any):
As a rule, selling a few unwanted items on an occasional basis, and not planning to make a profit, means you are not trading, per se. Even so, you cannot use any losses from a hobby or pastime to reduce your tax bill.
Another section explains how to check if you need to tell HMRC about additional income, such as extra money that is not (either)
Note: HM Revenue and Customs have a facility that allows you to check employment status for tax (including workers on specific engagements).
You may need to register for, and file, your Self Assessment tax return when you start working for yourself as a self-employed person. Doing so ensures you pay the correct amount of National Insurance and Income Tax.
Furthermore, you would need to register for Self Assessment if you (any):
You would still be able to make voluntary Class 2 National Insurance payments even if you do not register. Doing so would help to make sure you get the full State Pension.
Note: As a sole trader, you would also need to follow all the rules for running and naming a business venture or enterprise.
Several other business structures differ to those for becoming an individual sole trader. For example, you might choose to:
Note: The short video by HMRC is a useful introduction to the initial tax implications when becoming self-employed and starting a small business.
UK Rules When Working for Yourself and Trading