The simplest way to start a business in the UK is to become self employed. This is also commonly referred to as becoming a sole trader.
There is minimal paperwork to take care of, and you don’t have to pay any company formation costs. However, you do need to formally register as self employed with HMRC, and assume responsibility to pay your own income tax and National Insurance liabilities.
Here are the steps you must take to if you want to become self employed:
Pick a business name
What are you going to call your business? For many new entrepreneurs, this is the most exciting start-up task and one that lots of time is spent on!
Some people simply trade under their own name, or say they are; ‘Your Name trading as Business Name‘. For example, if you were John Smith you could opt for, ‘John Smith trading as John Smith Plumbers’.
Don’t forget to check that no-one else is using the same name. There is no register of business names used by self-employed people so you should do an online search to see whether someone is already running a business with your preferred name.
If someone has beaten you to it, then you’ll need to think again, and come up with an alternative name for your new business.
Tell HMRC you are becoming self employed
You must notify HMRC within 3 months of becoming self-employed. You can do this in one of these three ways:
1. Register online here.
2. Call the Newly Self Employed Helpline on 0845 915 4515.
3. If you want to register by post, you will need to fill in Form CWF1 here.
Don’t forget to register with HMRC, or you will be fined £100.
Becoming responsible for your own tax and National Insurance liabilities
Once you have registered as self-employed you will pay tax each year by submitting a self-assessment tax return to HMRC. A smart move is to keep tax money aside in a separate account from day one – then you will never find yourself scrabbling to meet a tax payment. Your accountant will advise how much tax you can expect to pay.
As a sole trader, you will also be responsible for paying your own National Insurance contributions (NICs). You will need to pay Class 2 NICs – currently £2.75 a week, and also extra Class 4 contributions which is currently 9% on annual profits between £7,956 and £41,865, and 2% on profits above £41,865. (2014/15 tax year).
The rules aren’t straightforward, so it’s wise to consult your accountant for advice specific to your financial situation.
Register for VAT
If your business has a turnover of more than £81,000 (from April 2014) in a rolling 12 month period you will need to register for VAT.
You will need to keep a close eye on how well your new business is doing, because once your annual turnover passes the threshold, you only have 30 days to register.
With some types of business, you need to get a licence before you can start working. For example, if you want to set up as a taxi driver you will need to apply for a licence from your local authority.
It’s the same for many other types of work, including being a child minder running a restaurant or pub, or being a market trader. And to get a licence, you will typically have to do some specific training and gain relevant qualifications. You may also have to go through an inspection to ensure your business is shipshape and legal.
More help and advice on ByteStart
When you are starting in business the decision on whether to go down the self employment route or to form a limited company is an important one.
Read our guide – 10 advantages of running your business as a limited company instead of being self employed to find out some of the key differences.
You should carefully consider the benefits and drawbacks of the options, and discuss with your accountant before jumping in.
For more information on becoming self employed, you should also read,
- Starting up in business as a sole trader?
- 5 things you must do when you go self employed
- A guide to self assessment tax for the self employed
- ByteStart’s Complete Business Start-Up Guide
Duport also offers a Sole Trader Package which will help you get up and running as a sole trader in a matter of hours (including the forms you need to register with HMRC).