When you choose to Go Self Employed you open yourself up to a whole new world of learning. It may add some comfort to know that most people feel confused by the same aspects.
Here are the Top 5 Questions I get asked and answers to them:
1. Can I Start a Business in my Spare Time While I have a full time job
Yes and lots of people do! It’s actually something that I suggest to anyone who wants to start a business because it is a really sensible idea.
Holding down your full time job gives you a chance to:
- Check you business idea works before going all in
- Gives you a way of funding your new business without the commitment of loans and overdrafts
- Helps you to pay your household bills until your new business generates revenue and pays you a salary
Whilst there is no law that can stop you from going self employed, you will have a contract with your employer. So you should check restrictions in your contract and definitely think twice before you pinch any clients! You don’t want to start your business with a bad reputation.
2. How does Tax work if I Go Self Employed
Tax is taxing – despite what HMRC say.
When you are self employed you have to pay income tax as well as Class 2 and Class 4 National insurance.
The amount of income tax you pay is based on ALL your earnings (so you need to add together all your self employment income as well as anything else you earn like bank interest, dividends or salary from employment). You’ll get all your tax reliefs and credit for any tax you pay through payroll.
Class 2 and Class 4 National Insurance is based on the amount of profit you make in your business.
3. I have already started working for myself but I haven’t registered as self employed. Am I going to get hit with penalties and demands for returns?
HMRC have guidelines on registering and penalties to failing to do so. And the penalties escalate, so don’t bury your head in the sand.
You must register as self employed by the 5 October in the second tax year of going self employed (a tax year runs from 6 April to 5 April). So if you went self employed on 1 January 2018 then you would need to register by 5 October 2018.
Once registered you need to send in a self assessment tax return by 31 January each year and there are penalties once again if you fail to do so.
If you haven’t registered then do so immediately – it’s simple enough to do yourself and there is a video here.
Penalties are automatic so if you have fail to do so then be warned.
4. What is the best way to keep my business and personal finances separate
The best advice is to open up a separate bank account. That way all your business income and expenses are kept in one place.
If you have been putting off opening a bank account, then check out Tide. You can sign up in less than 10 minutes through their app and you’ll get a debit card so you can pay for things on the move.
5. How do I repay my student loan now I am self employed
Being self employed doesn’t mean you escape repaying your student loan. You’ll need to repay it as part of you tax payment due by 31 January each year and include it on your self assessment tax return form. You’ll need to tick a box in section 2 – “Tell Us About You”.
The amount you need to repay is 9% of your total income (before deducting your personal allowance) above the threshold of your plan type.
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