A Beginners Guide to
Becoming Self Employed
The important steps you need to take to set up as self-employed, register with HMRC and organise the tax side of things
If you’re wondering what steps you need to take to become self-employed, how sole trader taxes work and what you need to track then you’re in the right place!
Google is great, but the issue is that the information that comes back can be overwhelming and gives you no clear place to start.
And while you’ll find all the information you’ll need on my website, I know the content is unorganised.
That’s why I created this summary – to give you a place where my guides are organised in a logical way to help guide you through the process of becoming self-employed.
What is Self-Employment?
Being self-employed means that you work for yourself, selling your own skills, services or products, rather than working for someone else.
Self-employment is also known as ‘sole trader’ or ‘freelancer’. But when it comes to the tax side of things, they all mean the same thing. It’s just customary to use different terms in different industries.
When you become self-employed you have certain business responsibilities, even if your business is just you. You’ll need to report your income, pay tax and report to HMRC because every time you get back their is no tax deducted from it (in most cases anyway) and you’ll be able to claim deductions and allowances to reduce your tax bill.
The Beginners Guide to Becoming Self Employed
In this 8-part series, you’ll find out what you need to do to set up as a sole trader correctly and put the right foundations in place to manage your finances the right way moving forward. If you want to dig deeper each guide contains links to more advanced material.
This series assumes you have decided on your idea for self-employment. Searching for an online business idea? Read this guide to discover 9 high-profit low investment self-employment ideas.
Part 1: UK Business Structures Basics
Before you launch into setting up your business you need to check you have the right business structure for your circumstances.
Part 2: How to Register as Self Employed
Learn how to register with HMRC as self-employed on the .GOV website, step-by-step.
Part 3: Setting Up Your Business
As a business owner, it’s up to you to put the right foundations in place to sell, market and deliver your service or product. Use this checklist to help you get set up.
Part 4: Managing Taxes
Learn what taxes you must pay, the applicable tax rates and how you pay what you owe to HMRC.
Part 5: Tax Allowable Expenses
Allowable expenses reduce your tax bill. Learn which expenses you can claim and which ones you can’t.
Part 6: Tracking Income & Expenses
Tracking your income and expenses and keeping receipts is all part of going self-employed. Learn the processes you need to put in place that will make a dull job quicker and easier.
Part 7: Tax Dates and Deadlines
Make a note of your filing and payment deadlines to help keep you on the right side of the tax man.
Part 8: Filling in Your Tax Return
It’s important to make sure there are no mistakes on your tax return and that you haven’t missed any numbers or sections. Use this step-by-step guide to help you fill in your tax return online.
If you’ve been reading anything about tax, you’ll know there’s lots of jargon. To keep things simple for now, here are a few key terms you should know.
Tax Return: A form you fill in to declare your business income, expenses and details of tax allowances and reliefs you’ll like to claim.
Tax Year: The tax year runs from 6 April to 5 April each year. Tax rates normally change at the start of each tax year.
Taxable Business Profits: What’s left after deducting your allowable business expenses from your business income. A negative number would be a business loss.
Allowable Expenses: Expenses you are legally allowed to deduct against your income to reduce your tax bill.
HMRC: Stands for HM Revenue & Customs – the part of the government responsible for setting the tax rules and collecting taxes.
Bookkeeping: The recording of individual business transactions and storing of records, in order to meet legal obligations, prepare accounts and tax returns.
Disallowable Expenses: Expenses you cannot claim against your taxes, even though they may be part of running your business.
UTR Number: A 10-digit code that HMRC uses to identify you once you are registered for self-assessment.
Self Assessment: The process created by HMRC for individuals to declare untaxed income to them on a tax return and pay tax owed.
Accounting Period: The period for which a sole trader gathers together income and expenses, usually 12 months unless starting or ending self-employment.
Income Tax: A portion of money taken by the government from taxable earnings to run the country.
National Insurance: A portion of money taken by the government as a contribution towards state benefits.
Payment Plan: A formal arrangement with HMRC to pay outstanding tax in instalments in the event you cannot pay your tax bill in full.
Payment on Account: An advance payment towards your next years tax bill, payable on 31 January and 31 July each year.
Cash Basis: A method of recording your income and expenses based on when you send and receive payments, rather than invoice date.
Cut through more of the jargon with my Tax Glossary