I want to go self employed, but i'm scared

ACon

KiKi wrote: »

Hi OP

Don't be scared - it's pretty simple.

1 - Call HMRC (or go online) and register as self employed

2 - You will have to pay Class 2 National Insurance Contributions at £2.50 ish a week (might have gone up this tax year); you can do this by direct debit, or pay every 6 months, there are different options

3 - When you do work for someone, you send them an invoice (plenty of templates online). This is simply a statement saying your name, address, contact details, and an invoice number (eg 001). You state the work you did (eg, "photography for wedding") and then how much you're charging them

4 - They pay you. This can go into your own bank account, or one you've specifically set up for business.

5 - You need to keep a spreadsheet or a record of all invoices, and a copy of the invoices themselves (can be on the computer, don't need paper ones). This is so you have a record of all the money that's come IN to you during the year. You must keep copies of these in case HMRC ever ask for them, and you need this total figure for your end of year tax return. But it doesn't need to be anything fancy. I just have a spreadsheet of invoice numbers and how much I charged them

6 - If you spend money on something for the business, like camera equipment, you can 'claim' this as an expense. So keep the receipts for all stuff like this. You should also keep a spreadsheet or other record of these, so you have the total figure of all the money that's gone OUT during the year.

7 - At the end of the tax year (April 5), you need to complete a tax return. You can do it online. You put in your personal details, contact number etc, and then the main things: the money that's come into you, and the money that you've spent on expenses.

8 - HMRC then calculate what you owe in tax and Class 4 NI contributions (if you earn enough), and you then pay that.


To explain how tax works, you have an allowance of £8105 which you can earn before you have to pay tax. This is referred to as tax code 810L. (Most people are on this code unless you have specific circumstances which mean otherwise.) Anything over £8015 is taxed at 20% - until you earn £42-3K ish then it's 40%. Class 4 NICs are 9% on everything over £5kish (can't remember exact figures).

What this means is that you should, to be on the safe side, put aside 29% of everything you earn. That way you will have it ready for your tax bill at the end of the year. And if you don't earn enough to pay tax or Class 4 NICs, then you have a nice little stash to spend on yourself!

The important reason to keep hold of your expense receipts (and to keep a track of the total) is because - assuming you earn more than £8105 and are therefore paying tax - expenses are deducted from your profit before you are taxed. So for example, let's say you earn £10k. You will have to pay tax on £1895 of it, at 20%. However, let's say you spend £500 on a camera for work. HMRC deduct that from your taxable income (so £1895 minus £500), and now you're only paying tax on £1395.

I don't know about the impact on your benefits I'm afraid, but I hope that helps reassure you on what you would need to do. The chances are that you won't earn enough in the first year to pay any tax, and when you've done it once it gets easier. The tax return is really, really easy to complete online, and you don't need an accountant.

HTH
KiKi

Huge THANKS for that. I'm going to go for it, wish me luck :-D

Sambucus_Nigra

OP - when you register for self employer with HMRC - they often do 'newly self employed' half day workshops on keeping your records and filling the tax form in. It's not the must fun half day but it will help you to keep the records that you need to.

KiKi

Good luck OP. And thank you Savvy_Sue for the correction - yes, you don't pay Class 2 NICs if you don't earn enough. So you can apply for an exemption to earnings this year if you don't think you're earnings will be high enough.

Horace

Remember too that you will need to have some public liability insurance as well. This will cover you if someone trips over a tripod or whatever and they choose to make a claim against you.