FAQ
I want to set up my own business as a self-employed. What should I do?
If you want to start working as self-employed, you must register with HM Revenue & Customs, but first make sure you have a National Insurance Number. After the registration, you will receive your Unique Taxpayer Reference (UTR) and HMRC will set up the right tax and National Insurance contributions records. You should keep your UTR safe because you will need it when completing your Self Assessment tax return.
How can I know whether I am employed or self-employed?
This depends upon what your contract says or what your working arrangements are. You can be employed and self-employed at the same time. When defining your employment status, you should refer to the following questions:
a) A self-employed person:
– Runs own business and decides about the type and time of its work
– Bears responsibility for the success or failure of the business
– Have more than one customer at the same time
– Can hire people
– Takes care of the main equipment needed to perform business activities
b) An employed person:
– Has to perform the tasks imposed on their own
– Is told how, where and when to do your work
– Works within fixed hours
– Work for just one person at a time
– is not in charge of the business nor takes responsibility for it, that is the employer’s task
– is paid a regular wage or salary
If you want to start working as self-employed, you must register with HM Revenue & Customs, but first make sure you have a National Insurance Number. After the registration, you will receive your Unique Taxpayer Reference (UTR) and HMRC will set up the right tax and National Insurance contributions records. You should keep your UTR safe because you will need it when completing your Self Assessment tax return.
How can I know whether I am employed or self-employed?
This depends upon what your contract says or what your working arrangements are. You can be employed and self-employed at the same time. When defining your employment status, you should refer to the following questions:
a) A self-employed person:
– Runs own business and decides about the type and time of its work
– Bears responsibility for the success or failure of the business
– Have more than one customer at the same time
– Can hire people
– Takes care of the main equipment needed to perform business activities
b) An employed person:
– Has to perform the tasks imposed on their own
– Is told how, where and when to do your work
– Works within fixed hours
– Work for just one person at a time
– is not in charge of the business nor takes responsibility for it, that is the employer’s task
– is paid a regular wage or salary
When should I register for VAT?
You may need to register for VAT if you are doing business in the UK as an individual, a partnership, a company, an association, a charity, a local authority or any other organisation or group of people acting together under a specific name.
Registration for VAT is compulsory if your annual turnover exceeds £79,000 or you expect the turnover to be higher than that amount in the next 30 days.
However, it may happen that your turnover has exceeded the registration threshold temporarily. In that case, you may apply for exception from registration. This applies for entrepreneurs supplying goods or services within the UK. If you take over a VAT registered business, your VAT taxable turnover over the last 12 months must be added to the turnover of the business you are taking over when checking if the registration threshold has been exceeded. And if you have received goods from other countries in the EU, registration for VAT is compulsory if the total value of the goods acquired has gone over £79,000 in the current year since 1 January.
Note that you cannot register for VAT if you sell only goods or services that are exempt from VAT or you are not in business according to the HMRC’s definition.
Can I register for VAT if my turnover is below the threshold for registration?
If you are doing business in the UK but your turnover is below the threshold for registration, you may register for VAT voluntarily. Remember to regularly check if your turnover has exceeded the threshold and you need to register.
You may need to register for VAT if you are doing business in the UK as an individual, a partnership, a company, an association, a charity, a local authority or any other organisation or group of people acting together under a specific name.
Registration for VAT is compulsory if your annual turnover exceeds £79,000 or you expect the turnover to be higher than that amount in the next 30 days.
However, it may happen that your turnover has exceeded the registration threshold temporarily. In that case, you may apply for exception from registration. This applies for entrepreneurs supplying goods or services within the UK. If you take over a VAT registered business, your VAT taxable turnover over the last 12 months must be added to the turnover of the business you are taking over when checking if the registration threshold has been exceeded. And if you have received goods from other countries in the EU, registration for VAT is compulsory if the total value of the goods acquired has gone over £79,000 in the current year since 1 January.
Note that you cannot register for VAT if you sell only goods or services that are exempt from VAT or you are not in business according to the HMRC’s definition.
Can I register for VAT if my turnover is below the threshold for registration?
If you are doing business in the UK but your turnover is below the threshold for registration, you may register for VAT voluntarily. Remember to regularly check if your turnover has exceeded the threshold and you need to register.
Why would I want to voluntarily register for VAT?
You may find it beneficial to be able to charge VAT on your sales and claim back VAT on your purchases in various ways. By way of example, if there is a zero VAT rate for the items you sell but you buy standard-rated items, HMRC will give you a VAT refund. Note that if you voluntarily register for VAT, you have the same rights but also responsibilities as in the case of compulsory registration.
I want to close my business, what should I do?
If you need to close your business you should plan it carefully. First of all, it is important that you inform HMRC of your intent. Only then will you be able to settle matters related to tax and National Insurance. In some circumstances it is possible to extend the deadlines for payments or even to claim back some tax or National Insurance.
You may find it beneficial to be able to charge VAT on your sales and claim back VAT on your purchases in various ways. By way of example, if there is a zero VAT rate for the items you sell but you buy standard-rated items, HMRC will give you a VAT refund. Note that if you voluntarily register for VAT, you have the same rights but also responsibilities as in the case of compulsory registration.
I want to close my business, what should I do?
If you need to close your business you should plan it carefully. First of all, it is important that you inform HMRC of your intent. Only then will you be able to settle matters related to tax and National Insurance. In some circumstances it is possible to extend the deadlines for payments or even to claim back some tax or National Insurance.
How can I inform HMRC that I want to close my business?
• Self-employed and business partners click here to complete an online form.
• Shareholders may still have to file Company Tax Returns and pay Corporation Tax while closing the business. You will need to account for any capital gains made in the closing process through your Company Tax Return.
• Employers must also submit a final Full Payment Submission (FPS) when running their final payroll, in addition to the standard procedure. It is important that you pay all outstanding PAYE tax and National Insurance deductions on a timely basis.
• VAT-registered businesses will need to deregister from VAT.
What is a Company Tax Return?
A Company Tax Return is a document which is filed for each accounting period by companies liable for Corporation Tax. A company has to file a return each month, even if it has not made any profit.
• Self-employed and business partners click here to complete an online form.
• Shareholders may still have to file Company Tax Returns and pay Corporation Tax while closing the business. You will need to account for any capital gains made in the closing process through your Company Tax Return.
• Employers must also submit a final Full Payment Submission (FPS) when running their final payroll, in addition to the standard procedure. It is important that you pay all outstanding PAYE tax and National Insurance deductions on a timely basis.
• VAT-registered businesses will need to deregister from VAT.
What is a Company Tax Return?
A Company Tax Return is a document which is filed for each accounting period by companies liable for Corporation Tax. A company has to file a return each month, even if it has not made any profit.
What is Capital Gains Tax?
Capital Gains Tax is a tax you pay when you make a profit by way of selling assets (e.g. shares or property). Your Capital Gains Tax may be reduced by a tax-free allowance and some additional reliefs. There are also some circumstances under which no capital gain tax has to be paid.
Do I have to manage my finances personally or can an accountant to do it for me?
In most cases you do not have to manage your finances on your own. You may authorise an accountant to act for you. In fact, some entrepreneurs find it too complicated or time-consuming to deal with financial matters by themselves. You can avoid many misunderstandings or mistakes if you authorise an accountant to do it for you. HMRC requires a special form for this purpose. Note that you are still responsible for your own tax affairs at all times.
What are the benefits of writing a Business Plan?
Many potential start-up businesses are daunted by the prospect of writing a business plan. But it is not a difficult process – and a good business plan focuses the mind as well as helping to secure finance and support.
The business plan will clarify your business idea and define your long-term objectives. It provides a blueprint for running the business and a series of benchmarks to check your progress against. It is also vital for convincing your bank – and possibly key customers and suppliers – to support you
What are the advantages of being a Sole trader
There are no formation costs
– Sole traders are not required by law to have annual accounts nor to file accounts for inspection. However annual accounts are necessary for tax returns
– Sole traders are unrestricted in the amount and purpose of borrowings (but cannot create floating charges)
– Losses generated by a sole trader can be set against other income of the year or carried back to prior years.
Tax make-up of a Sole Trader
– For a sole trader, tax is generally paid by instalments on January 31st in the tax year, and July 31st following the tax year. For an ongoing business, tax for 2011-12 is payable: first payment on January 31st 2012, second payment on account on July 31st 2012, with any final due on January 31st 2013
– A sole trader will pay Class 2 NI of £2.50 a week and Class 4 NI, depending on their level of profits
– Profits are taxed at 40% on taxable income in excess of £35,000 and at 50% over £150,000 (2011-12).
Do I have to set up a Limited company?
If you wish to trade and do not use a limited company you will be personally liable for the debt of your business. If you have assets or savings they are vulnerable to a claim made against you.
By trading through a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company.
The company has a separate legal identity from its owners and directors and unless they sign a personal guarantee for its debts they are not liable for these
There are a number of advantages in becoming a limited company, such as :-
Do I have to set up a Limited company?
If you wish to trade and do not use a limited company you will be personally liable for the debt of your business. If you have assets or savings they are vulnerable to a claim made against you.
By trading through a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company.
The company has a separate legal identity from its owners and directors and unless they sign a personal guarantee for its debts they are not liable for these
There are a number of advantages in becoming a limited company, such as :-
Capital Gains Tax is a tax you pay when you make a profit by way of selling assets (e.g. shares or property). Your Capital Gains Tax may be reduced by a tax-free allowance and some additional reliefs. There are also some circumstances under which no capital gain tax has to be paid.
Do I have to manage my finances personally or can an accountant to do it for me?
In most cases you do not have to manage your finances on your own. You may authorise an accountant to act for you. In fact, some entrepreneurs find it too complicated or time-consuming to deal with financial matters by themselves. You can avoid many misunderstandings or mistakes if you authorise an accountant to do it for you. HMRC requires a special form for this purpose. Note that you are still responsible for your own tax affairs at all times.
What are the benefits of writing a Business Plan?
Many potential start-up businesses are daunted by the prospect of writing a business plan. But it is not a difficult process – and a good business plan focuses the mind as well as helping to secure finance and support.
The business plan will clarify your business idea and define your long-term objectives. It provides a blueprint for running the business and a series of benchmarks to check your progress against. It is also vital for convincing your bank – and possibly key customers and suppliers – to support you
What are the advantages of being a Sole trader
There are no formation costs
– Sole traders are not required by law to have annual accounts nor to file accounts for inspection. However annual accounts are necessary for tax returns
– Sole traders are unrestricted in the amount and purpose of borrowings (but cannot create floating charges)
– Losses generated by a sole trader can be set against other income of the year or carried back to prior years.
Tax make-up of a Sole Trader
– For a sole trader, tax is generally paid by instalments on January 31st in the tax year, and July 31st following the tax year. For an ongoing business, tax for 2011-12 is payable: first payment on January 31st 2012, second payment on account on July 31st 2012, with any final due on January 31st 2013
– A sole trader will pay Class 2 NI of £2.50 a week and Class 4 NI, depending on their level of profits
– Profits are taxed at 40% on taxable income in excess of £35,000 and at 50% over £150,000 (2011-12).
Do I have to set up a Limited company?
If you wish to trade and do not use a limited company you will be personally liable for the debt of your business. If you have assets or savings they are vulnerable to a claim made against you.
By trading through a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company.
The company has a separate legal identity from its owners and directors and unless they sign a personal guarantee for its debts they are not liable for these
There are a number of advantages in becoming a limited company, such as :-
- You can give a share of the business to others eg family.
- It may be easier to attract people to invest money in your business.
- Obtaining bank loans may be easier.
- There is no higher rate tax bands.
- In the event of a partner leaving or somebody dying it is easier to continue the business.
- It is easier to sell the business.
- You have better standing in the public eye.
- It can assist in the protection of a name.
- People have more confidence in your business as they can check up on your company on the public records at Companies House.
- Subcontractors and agency workers will find it easier to obtain work.
Do I have to set up a Limited company?
If you wish to trade and do not use a limited company you will be personally liable for the debt of your business. If you have assets or savings they are vulnerable to a claim made against you.
By trading through a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company.
The company has a separate legal identity from its owners and directors and unless they sign a personal guarantee for its debts they are not liable for these
There are a number of advantages in becoming a limited company, such as :-
- You can give a share of the business to others eg family.
- It may be easier to attract people to invest money in your business.
- Obtaining bank loans may be easier.
- There is no higher rate tax bands.
- In the event of a partner leaving or somebody dying it is easier to continue the business.
- It is easier to sell the business.
- You have better standing in the public eye.
- It can assist in the protection of a name.
- People have more confidence in your business as they can check up on your company on the public records at Companies House.
- Subcontractors and agency workers will find it easier to obtain work.
