One of the main advantages of self-employment is the ease of starting and running a business. Self-employment in the UK, similar to Poland, is one of the easiest ways to run a business. However, being self-employed in the UK does require certain formalities. Below we discuss the five most important things to consider if you decide to become self-employed.
1. Register your sole trader in the UK and pay National Insurance contributions
After starting a business, a self-employed person in the UK becomes responsible for paying their income tax and National Insurance contributions.
Registering as Self-Employed with HMRC
You must register with HMRC as a self-employed person within three months of starting your business, even if you have previously filed your tax returns on a self-assessment basis. You can do this online or by calling 0845 915 4515.
National Insurance Contributions for the Self-Employed in the UK: Class 2 and Class 4
Self-employed people pay Class 2 National Insurance contributions – £3.15 per week in tax year 2022/2023 if they earn £6,725 or more per year (the threshold for tax year 2022/2023).
There are also Class 4 contributions, which for the 2022/2023 tax year will be 10.25% on annual profits between £9,881 and £50,270 and 3.25% on profits over £50,270.
2. Check if you need to register for VAT as a self-employed person in the UK
In 2022, you will need to register for VAT if your annual turnover is £85,000 or more.
If you expect to exceed this threshold at any time, you will also need to register. You must notify HMRC within 30 days of becoming aware of this. Failure to do so may result in penalties.
The VAT exemption threshold for self-employed individuals in the UK is usually increased by a few thousand pounds each year.
Optional VAT Registration for the Self-Employed in the UK
In many cases, it is worth considering VAT registration even if it is not required.
Having a VAT number can boost your credibility and allow you to reclaim VAT on qualifying expenses. You might also consider registering for the Flat Rate Scheme, which simplifies tax calculations.
3. Open a Business Bank Account
It’s important to keep matters relating to your self-employment in the UK (including finances) separate from your personal affairs.
For this reason, it’s a good idea to open a separate business bank account. Not only is it practical, but when the company name appears on cheques or invoices, it makes your UK business look more professional.
4. Additional Formalities Related to Self-Employment in the UK: Business Insurance
If you decide to become self-employed in the UK, remember to consider insurance. Requirements vary depending on the type of business and industry. You may also choose to take out additional cover.
You are legally required to have employers’ liability insurance if you employ anyone outside your immediate family:
- Legal costs if a claim is brought against the business by an employee or subcontractor,
- Compensation for any damage or injury resulting from the employee’s professional activities.
The level of insurance required depends on the type of business and the number of employees. The legal minimum for this type of policy is £5 million. The insurance certificate must be displayed in a place easily accessible to employees. Failure to have a policy can result in significant fines.
Most small businesses opt for public liability insurance, especially when clients visit the business premises or when work is performed on the clients’ property. This insurance covers accidents and damages related to the business activities.
5. Being Self-Employed in the UK Also Means Keeping Accurate and Up-to-Date Financial Records
From the outset, make sure you keep clear and accurate records of all business transactions. Properly organising and updating your documentation is not only useful for regulatory purposes, but also makes running your business easier.
