When starting up as a freelancer or contractor, you will want to consider what the best trading method is for you; below I will go over what is required whether you choose to trade as a Sole Trader or a Limited Company.
You can check out Part 2 on Limited Companies here.
Starting up as a Sole Trader
Starting as a Sole Trader is an easy peasy way to trade – with less legislative requirements, though this might not be as tax efficient as trading through Limited Company.
To start up as a Sole Trader you need to tell HMRC that you will now trade as a Sole Trader –and will be considered Self Employed. We provide a free set up as a sole trader for our clients to ensure that all of the correct boxes are ticked – but you can do this yourself.
You need to make sure you set yourself up for Class 2 National Insurance Contributions payments – you can set this up as 6 monthly or monthly payments via direct debit.
We recommend you set up a separate Bank Account for your business transactions – this is not a legal requirement but is highly recommended to ensure you don’t get your personal money, and business money muddled up (this can be a separate un-used personal account, but not an ISA).
You may need Business Insurances. Such as Professional Indemnity Insurance (to cover claims should your client allege that they have suffered financial loss as a result of your error) and Public Liability Insurance (covering you for injury, death, property damage as a result of negligent acts).
Depending on how much money you will bring in, you might want to consider keeping a PAYE position (part time or full time) to help pay the bills whilst you get your Sole Trader business off the ground.
Once operating as a Sole Trader full time, you will also want to consider Financial planning – i.e. cover such as Life, Critical Illness, Medical and Health protection as you will no longer have an employer to rely on should something un-toward happen to you.
As soon as you start trading as a Sole Trader, i.e. you incur your first business expense (buy something for the business), or provide your first service and need to raise an invoice (so you can get paid), you will need to record these transactions somewhere. This is a good time to get an Accountant to help you out (like us), or start using online bookkeeping software (like FreeAgent). Whichever you do, make sure you don’t leave this to the last minute, the quicker you have an organised book keeping system, noting all transactions, the better – trust me it will save you a LOT of hassle down the line.
It’s time to generate some awesome clients! This is a good time to look for someone reasonably priced, and reasonably talented to set up a website for you. You can then further increase your online profile by setting up or updating your LinkedIn profile, a Twitter Account, and a Business Facebook page, you can look for other online places to populate your brand such as business forums and websites dedicated to your sector.
Get yourself some business cards printed so that when you meet people you can stay in their mind and follow up by requesting their contact details.
Now that you are a full blown Sole Trader, and you have everything in place, you can look forward to getting your Personal Tax Return done at the end of the year – safe in the knowledge that you were organised right from the start.
The article outlines the typical tax payment dates and methods of estimating the values of tax payable for each type of tax, including VAT, PAYE, NIC, CIS, Corporation Tax, and Dividend and Personal Taxes.
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