I have a business idea, do I need to register as self employed?
Congratulations! Having a new business is so exciting. You now have a few options.
Trading allowance
Each financial year you have a trading allowance which means you can receive up to £1,000 without having to register with HMRC.
The downside to this is that you can’t claim any expenditure so if you make a loss, you can’t carry it forward to reduce your tax bill in the future.
Self employment
The most easiest way to run is a business, is by being self employed. Generally, you pay tax at 20% on your profits above your personal allowance, however your personal circumstances could change this.
Running a business as self employed does not limit your liability if something goes wrong, as effectively you and your business are the same.
Self employment can be a great way to start a business and test the waters.
If you’re ready to register as self employed, then you need to tell HMRC by 5th October of the following tax year. You will then have to submit a self assessment tax return and pay any tax due each year.
Limited Company
You might decide to set up a limited company. This can be more tax efficient for you and you reduce your liability i.e the company and you are separate so you’re less likely to lose personal assets of things go wrong.
There is a lot more admin involved with starting a limited company but it has advantages too.
If you set up a limited company, you need to register it with Companies House and HMRC. You may or may not need to register for self assessment depending on your circumstances.
A company has its own bank account and is a separate legal entity to the owners (shareholders).
A limited company pays corporation tax at 19% on its profits. If you’re a shareholder there could be some big tax savings to be made if you declare dividends.
How do I decide which option is right for me?
There’s no right and wrong answer and no one size fits all here. The best thing you can do is discuss it with us and together we can make the right decision and come up with a plan.
Contact us here to talk about setting up your business today.