If you have finally made up your mind to exit the rat-race and set up your venture, there are some things you need to do to ensure you are in the HRMC’s good books. Failing to do so will not only make your life difficult but risk hefty financial penalties.
Usually, even if you have already completed your tax returns, by the time you become self-employed, you will need to register for self-assessment and Class 2 National Insurance. If by October 5th of your businesses second year of operation you haven’t registered, you could be fined for it. In registering as a self-employed, there are three options available to you. You can register as a sole trader, a partnership or a limited liability company. However, whichever you choose, there are 9 general steps you must follow, and they include:
• First, you have to create a Government Gateway account, and you will need to provide your name, an email address and a password. To proceed to the next step, they will send you a user ID.
• You will use the user ID they give you to sign into the tax service page. Next, you register as self-employed for Self-Assessment tax and include your tax, duty or scheme.
• You will be asked the kind of tax you want to add. Select Self-Assessment, then choose a category. There are three major categories which are sole-trader, partnership and trust.
• Next, add a date you began working as a self-employed and earning from it.
• HMRC will require some additional information like your home address, contact detail, National Insurance number and some other information which relates to your business model.
• Next, you will be asked the business you do, and a summary such as “writer” or “painter” would do.
• Crosscheck your information and submit
• Once your application has been received, you will receive a letter from HMRC containing a 10-digit Unique Taxpayer Reference (UTR).
• Finally, you will be enrolled for Self-Assessment and officially be declared self-employed.
SETTING UP AS A SOLE-TRADER
Registering as a sole-trader means you don’t have to deal with as much paperwork as the other routes and much of the paperwork you will be doing, you can handle yourself. Also as a sole trader, you don’t have to make information relating to your business public. However, as a sole trader, there is no distinction between your private property and business assets, so it’s essential you have your books in order or risk life-altering losses.
To register as a sole-trader, follow the steps above.
SETTING UP AS A PARTNERSHIP
There are a couple of advantages of setting up as a partnership and usually, the more partners involved in the business, the more startup capital there is. Also, there is more input into the creative and decision-making process. However, with a partnership, there might be arguments or friction in the course of running the business, and partners are liable for any debts which the business incurs.
To register a partnership, you would need to register as a self-employed like above, and you won’t have to deal with any of the paperwork required from limited companies. However, you will need to submit individual paperwork and tax returns as needed from sole traders.
SETTING UP AS A LIMITED COMPANY
The primary benefit of setting up as a limited company is that your personal and business assets are separate so if the business fails, your personal belongings cannot be used to cover the loss.
To register as a company, you would first register online, and you can do this if shares restrict your company. Alternatively, you can register by post and same day but for an extra fee.
At Remigius, we can help you decide which business model best suits your company and provide you with the needed support to get you registered.