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More than five million people are thought to be self-employed in the UK, according to the latest report from the Office for National Statistics (ONS). Read on to find out more about what the Government defines as self-employment, and the process for registering as self-employed.
What does self-employed mean?
The Government website defines someone as self-employed “if they run their business for themselves and take responsibility for its success or failure”.
People who are self-employed aren’t paid through PAYE like employed people are.
Self-employed workers also do not have many of the employment rights employees hold.
Some people may be both employed and self-employed, depending on their circumstances.
There are several options available for people who want to become self-employed.
Self-employed people may decide to trade as sole traders, or instead trade through a limited company or as part of a business partnership.
Dave Chaplin, CEO and founder of contracting authority ContractorCalculator and IR35 Shield, explained to Express.co.uk: “The structure you opt for will have commercial, financial and tax implications.
“Increasingly, the most popular trading model is the limited company option; being limited means that your business finances are separate from your own personal finances and so if you run into any difficulties with your business you will not be personally liable. You will only lose money from your business.
“However, most people initially might choose to set up as a sole trader which comes with less administrative onus.
“Working as a sole trader brings much of the freedom that comes with a limited company but without the formality.
“However, a sole trader is still responsible for maintaining accounts and records, but the income generated will be counted along your personal income, making the accountancy side of running your business fairly straightforward.
“But that does mean that your personal assets could be at risk if your business fails and there are debts to be paid.
“Whichever route you decide, find a good accountant to help you who specialises in managing the accounts for micro-businesses.”
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How to register as self-employed
Anyone wanting to set up as a sole trader will need to register with HMRC.
The Government website states someone will need to set up as sole trader if any of the following apply:
- They earned more than £1,000 from self-employment between April 6, 2019 and April 5, 2020
- They need to prove they’re self-employed, for example, to claim Tax-Free Childcare
- They want to make voluntary Class 2 National Insurance payments to help qualify for benefits
Sole traders need to register to pay tax through Self Assessment, and further details can be found on the Government website here.
Registering for Self Assessment will involve keeping records of business sales and expenses, and filing a tax return every year.
It will also involve paying Income Tax, as well as Class 2 and Class 4 National Insurance.
Instead of setting up as a sole trader, some may decide to work for themselves in a limited company or as a partner in a business partnership.
The process for setting up as self-employed for these options is different to registering as a sole trader, and further details can be found on the Government website.
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