As their employers suffer in the current pandemic and the furlough scheme winds down, some employees have found themselves being made redundant. Many will look for other employment but others will take a different road, taking the opportunity to move to working for themselves instead. With redundancy often coming with an additional payoff, some may even find they have some start-up capital for their new venture.
If you set up in business yourself, you will be a sole trader. You will have to register with HMRC as self-employed so they know to request a tax return from you. The latest you can register as self-employed is 5th October in the tax year after you start (so anyone starting now will need to register by 5th October 2021). Late registration can lead to a fine. You can register here tinyurl.com/SEHMRC
PICTURE: Bruce Mars/unsplash
Once you are registered as self-employed, you will need to submit a tax return for every tax year, starting with the year you register. The deadline for filing these is 31st January after the tax year end. For those starting now, the first tax return will be for the year ended 5th April 2021, due to be filed by 31st January 2022. The tax due on your income for that first tax year will be payable on the same date.
You can set whatever accounts year-end you like for your business. For tax purposes, your period of taxable profits will be up to 5th April in the year you start. In the second and future years, your period for taxable profits will be the accounts period ending in that tax year. If you choose an accounts year end other than 31st March (accepted as 5th April for tax return purposes) this means some of your profits will be taxed twice. These double taxed profits are deducted from your profits in your last period of trading. Because of this it will usually be best to choose 31st March as your year end.
If your total sales go over £85,000 in any year, or you expect them to go over that limit in the next 30 days, you will need to register for VAT. This will usually mean that you need to charge VAT on to your customers at the correct rate (currently 20% for standard-rated items). You will also need to submit VAT returns every 3 months. There are several different schemes for calculating the VAT you pay over to HMRC, the most common being that you simply deduct the VAT on your expenses. You can register for VAT here. tinyurl.com/VATRegister
If you are successful enough to achieve the level of sales needed to register for VAT, you are likely to also need someone else to help you with the work. If you take on employees of your own, you may need to register as an employer. This will be the case if you take on anyone that already has another job or pay anyone above the Lower Earnings Limit for National Insurance (currently £120 per week). Once you are registered as an employer, you will need to perform calculations for PAYE tax and National Insurance contributions for all your employees. Details of these must be submitted to HMRC every time you pay your employees, along with payment of deductions made. You may also need to set up an Auto-Enrolment pension scheme. You can register as an employer here. tinyurl.com/PAYEReg
Whilst it is possible to handle all these tasks yourself, it will generally be advisable to seek professional advice for all but the smallest businesses.
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