Self-employment is a situation in which a person considered as self-employed in order to run his/her business activity based on commercial law.
This means that an individual (physical entity) is also a business, that engaged in commercial activities and therefore, regulated by commercial law as well. In simpler terms, a person and business are one and the same "thing".
To become a self-employed person, you must at least:
✔ have National Insurance Number ✔ have some valid ID ✔ live in the UK
A self-employed person can:
❭ have employees ❭ sell goods and services ❭ be an employee and at the same time self-employed ❭ be part of a Limited Liability Partnership (LLP) ❭ have a VAT number ❭ claim business expenses for tax purposes ❭ have his/her home address same with business address ❭ relates to different residency (aliens) code (consult experts in immigration) ❭ have a business (trade) name, other than his/her own
Beware of accompanying characterizations! e.g. 'Accredited'. You should have a special permission from the Department for Business, Energy & Industrial Strategy (BEIS).
The main and very basic obligations of a self-employed person:
❭ keep records of your business’s sales and expenses ❭ send a Self Assessment tax return every year ❭ pay Income Tax on your profits and Class 2 and Class 4 National Insurance
The "how much" taxes are paid by a self-employed person, depends on the total income and not only on those received from his business activity (for example, if a person has an additional income from the rentals). In other words, a person pays taxes based on his total sources of income.
Some other points that affect the amount payable, are the sources of income, for example. "Shares", which belongs to a different tax classification.
The basics of Income Tax rates and Personal Allowances for 2017/18
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £123,000 or above.
National Insurance contribution for 2017/18
Class 2 is optional if your profits are £6,025 (£5,965 for 2016/17) or less in a year.
The process of becoming self-employed is relatively simple and has straightforward steps. However, this is the last thing a person should think about, when considers the possibility of entrepreneurship, since there are many subjects that are much more important to know.
A quick look at the very basics.
In this way of doing business, one of the most important things one needs to know, is that the business and person are one and the same thing. Subsequently, any debt - obligation of business to third parties, belongs to the person as well.
Tax on the other, we believe is the most important part. A good strategy can help to stop freezing funds and give more liquidity. Simple example is a private car (which no matter - partly or wholly used for business), where only partial amount of total cost can be claimed for tax purposes. Moreover, the business can't claim all the relevant amount of it in one financial year, something, that in the case of a VAN is a bit different and more favorable.
It is also important, that young entrepreneurs, come with difficulties such as Payments on Account when the tax liabilities of the business exceed £ 1000. Despite the fact, that next year a balancing calculation takes place, many people struggling to deal with it at their firsts entrepreneurial steps.
Bear in mind that, if a person's income exceeds 45,000 - 50,000, it is a good idea to consider a company formation. And here, surely needs a microscopic examination of your accountant / business advisor.
Nevertheless, the connotation of the self-employed should not be associated only with disadvantages, if someone compares it for example with a LTD company. For instance, the bank account of your business is your and has no restrictions on how much money you can withdraw, something, that is not so straightforward in the case of a LTD company. Some additional benefits, are the charges of an accountant, which is much lower if we compare it again with a company.
For the differences of "self-employment", comparing with a company, or another entity, we should certainly refer to another, extra chapter and be equipped with a lot of patience for reading, as there are many aspects requiring detailed analysis, both fundamental and technical.
In any case, it is reasonable and prudent to seek a full and professional guidance. And this guidance, must always take into account the personal nature of the entrepreneur, since the needs, infrastructure, business goals and many other aspects of each person differs greatly.
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Attention! This article is intended to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.