Becoming self-employed: A step-by-step guide

So, you're finally thinking of being self-employed. Congratulations! It's a bold step to venture into such a change. For sure, you'll encounter challenges along the way, but as long as you remain steadfast, self-employment can be rewarding.

How do you start with this new path? Keep on reading and uncover valuable information about the process of registering as a self-employed individual.

The meaning of self-employed

Millions of people have already registered as self-employed. But do you know what it means? This is one of the most important before you start a business as a self-employed individual.

In a nutshell, working as a self-employed means you work for yourself instead of an employer. You're responsible for running the daily operations of your company or business. It also means you're trading goods and services for a profit.

When you have an employer, your income is based on the Pay-As-You-Earn scheme. The latter is a system set up by HMRC for tax collection and insurance enrolment. These will be your sole responsibility.

Registration as self-employed brings a number of benefits. On top of the list would be independence and flexibility, especially from an employer. You can work at home, in a virtual office, or anywhere you want to. To add, you can enjoy ownership and have complete control of your company or business.

Setting up for self-employment

It can be overwhelming for most people, but once you know the basics, it's easy to register as a self-employed individual. Let's look at the steps below.

Choose a business structure

One of your options is to register your company as a sole trader. It means you're the sole owner of the business, eliminating the distinction between the owner and the company.

Another option is to form a limited company. This way, you share your business with other individuals.

Inform the HMRC

This is perhaps the most important once you decide to register for self-employment. It is a legal obligation. Through this, you're also basically informing HMRC of the changes in your tax scheme. As a self-employed, your tax payments will be through self-assessment, which you have to personally take care of.

The right time is also crucial. It's best to register as early as possible. Otherwise, the HMRC rules state that you must file the necessary requirements before October 5 following the second tax year you become self-employed. So, if you started with self-employment on January 1, 2023, you need to register your company or business at HMRC before October 5, 2024.

The HMRC platform is also where you'll need to make a Government Gateway Account. You'll do this online. Within 10 working days of completing your self-assessment and application, you’ll receive your Unique Taxpayer Reference (UTR) by post.

Set up a bank account

Even if you register as self-employed, you'll need to make a separate bank account for your business. This will also make it easier to monitor your income. The specific requirements for setting up a bank account will vary from one provider to another.

Some banks will allow you to create an account online for convenience. More so, others will charge a fee for setting up a bank account while it can be free from some banks.

Take care of insurance

Registering for self-employment requires handling your legal obligations, and that includes your insurance. Your choice of insurance depends on the type of business and the industry where you're operating.

There will be changes in your National Insurance Contributions. You'll need to pay Class 2 and Class 4 contributions if you're self-employed.

Register for VAT

As part of your legal tax obligations, your business might also need to register for VAT return. This is the case if your business turnover for the year is at least £85,000. You don't need to do this right away as you can register once you think your business is hitting the threshold for filing a VAT return.

Tips for success in self-employment

Your application for self-employment is just one of the many elements that can help you succeed. A proactive approach is necessary to succeed in this landscape.

Handle your finances wisely

Budgeting is crucial. Separate your personal budget from that of your business. Create a financial plan with realistic projections. Look for opportunities to bring down costs.

Build your network

From attending industry events to joining professional organizations, networking can help self-employed individuals succeed.

Market effectively

Regardless of your product or service, effective marketing is a major ingredient for your success. From social media to email, look for different platforms where you can promote your business or yourself.

Conclusion

Are you ready to break out from conventional employment and take the self-employed route instead? The process can be overwhelming, but it's easy. Especially when you consider the benefits, such as freedom and complete control, it can be worth it.