- Being self employed on your own is also known as being a sole trader.
If you were self employed with someone else you’d be in a partnership.
If you formally incorporate your business, via registering at Companies House, you would be operating a limited company.
- HMRC do not need to see full accounts (profit and loss account and balance sheet) for the self employed with a turnover less than an amount equivalent to the VAT registration threshold.
In fact at this level of turnover you only need to show your turnover (income from self employment) and your total allowable business costs; so you do not have to actually analyse your costs between headings unless this would be of benefit for you to do so for monitoring purposes.
- Self employed with a turnover less than an amount equivalent to the VAT registration threshold need only complete the short, as opposed to the full, self assessment.
- Self employed pay income tax and Class Four National Insurance on profits.
Class 2 National Insurance is also paid at a fixed amount per week.
Note – Class 2 and 4 National Insurance are currently under review and may well change in the future.
- The much talked about HMRC Making Tax Digital Project has been shelved for non VAT registered businesses with a turnover below the VAT registration threshold. So that’s one less thing to worry about for the foreseeable future.
- If you’re self employed you can make your record keeping easier by using the “Simplified Expenses” rules for vehicles and premises costs; see here https://www.gov.uk/simpler-income-tax-simplified-expenses/overview
- You do not need to have a separate business bank account if you are self employed. However if HMRC investigate your business they may ask to see your bank statements. So if you want to keep your personal costs private it is better to run a separate business bank account (subject of course to account charges).
- If you are working for yourself you need to register with HMRC. You will need to complete a self assessment tax return even if your profit is less than the personal allowance each year or even if you are making a loss.
- You do not pay yourself a salary if you are self employed. Money that you take out of the business is known as “Drawings”.
- Tax is paid on all profits from the business whether or not you have withdrawn the profits.