If you want to become self employed as a sole trader or freelancer, it is advisable to plan out what you need to do to start your business. There are different aspects to consider such as business name, pricing, budget, customer service, insurance and accounting.

Registering as self employed sole trader

After you have set up your business you will need to register with the tax office – HMRC – HM Revenue & Customs as soon as you can, within a maximum of 3 months.


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You will need to proof your business visa, settled or pre-settled status if you are not British citizen, your National Insurance number, your business details, for example: business name, address, start date, etc. You can register online as a sole trader or as a partnership, here HMRC self employment registration.
You will receive a UTR – Unique Taxpayer Reference number, this will be needed later for completing your tax return.

If you do not have a National Insurance number you will then first need to apply for one. Find more about obtaining a NI number here.

Choosing your Business Name

Your business can run under your own name or a business name. If you are a sole trader you are required to display your own name and your business name (if you have one) on your accounts, invoices and business letters.

There are certain rules for the names that you can use for a business. Make sure to choose the right name according to the rules:

  • The business name can not include the words or acronyms: ‘limited’, ‘Ltd’, ‘LLP’, ‘limited liability partnership’, ‘PLC’, or ‘public limited company’. These indicate the types of the companies.
  • You can not use sensitive words or phrases – sensitive words or expressions list
  • You can not use words that refer to a relationship between a government or a local official body.
  • You may not use a registered trademark word or similar version of  it – Registered trademark list
  • You can not use an already registered company name. Find out if your proposed company name already exists here Company house
  • And finally you must use socially accepted and non-offensive words.

Your business name is automatically protected by copyright but you can also register it as a trade mark. Registration costs start from £170. Find more details here.

Taxes and National insurance

The tax year runs from 6 April to following year 5 April.


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You will need to pay income tax, Class 4 and Class 2 National Insurance contribution on your earnings. You’ll be able to claim expenses, personal allowances and other reliefs as a self employed person. Self-assessments must be submitted and all taxes and NI contributions must be paid by 31 January of the following year.

For example, you started your business on 1 July 2020, then the tax year for your business will end on 5 April 2021 therefore the tax return will need to be submitted and taxes paid by 31 January 2022.

VAT

You may need to pay Value added tax (VAT) to HM Revenue and Customs.
You must register for VAT if your taxable turnover is or expected to be more than £85,000 in a 12 month or in a single 30 day period. You must register within 30 days of your business turnover exceeding £85,000.
Register for VAT online or print and fill in a VAT registration form. Help notes.

It is not required that you hire an accountant. If you wish you can manage your business books and tax returns yourself.

Insurances

Employers Liability Insurance is mandatory if you have employees. More info about taking on an employee.
Public Liability Insurance is optional but recommended. It covers you if someone is injured or if their property is damaged because of your business.
Motor Insurance is required if you use any vehicle. More info about owning a vehicle.

More info about insurances here.

Data Protection Registration

The policy requires that any organization or sole trader that processes personal data (such as customer, employee data) must pay an annual data protection fee on the ICO – Information Commissioner’s Office website. The fee you pay depends on your company’s turnover or the number of employees.

  • Tier 1 is £40 per year. Micro organizations and small businesses with a turnover of less than £632,000 for a financial year or up to 10 employees.
  • Tier 2 is £60 per year. Small and medium-sized enterprises with a turnover of up to £36 million for a financial year or up to 250 employees.
  • Tier 3 is £2,900 per year. Other large organizations and businesses.

Local Council licenses and registrations

In some sectors, you must apply for a license or register with the local council. For example,if you are a beautician, a nail technician, a massage therapist, a taxi driver, etc or  the use of an office, shop, salon or a room, or selling certain products, and so on.

Rules may vary by councils. Find out if you need any license or registration at your local council. As a general guide, you can check what license you may need here on the government website.

Pricing

Ideally you should perform market research. Find out which businesses offer similar products or services to the area you would like to cover. For example, look around on classifieds websites e.g.: www.gumtree.com, or find similar companies on google or in phone books e.g.: www.yell com and check out their price list.

Create your business plan:

  • What tools and materials do you need?
  • How much do they cost? And how often will you have to replace them?
  • Transport costs, if you use a car, how much is the insurance, fuel and other maintenance costs.
  • If you have employees, you must also count on other expenses beyond wages e.g.: employer insurance, NI and pension contribution, etc.
  • How much you need to spend on advertising, rent, business rates, licences, utility bills, phone bills etc.
  • How much your own wages will be.

Calculate how much your turnover (all money you take from customers for your services) should be per week or month. Price your services accordingly.

Find more information about marketing your business here.

For more information about self employment visit www.gov.uk or call 0300 200 2504 tax office – HMRC Newly Self-Employed Helpline.