Definition of self-employment
Becoming self-employed is the simplest form of running your own business. You don’t have to set up a company and there is very little paper work to do. You can do self employed work at the same time as being employed or receiving other income.
You are personally responsible for the income and any losses or liabilities you incur. This is what makes it different from setting up a company.
HMRC have an online tool to help determine if you are self employed. But if you are selling goods or services for a profit, rather than just selling unwanted items occasionally, and you are responsible for delivering these yourself, you are probably self employed.
You don’t need to have a separate bank account for your self employed work although many people do. If you use a personal bank account and HMRC decide to investigate your business they may ask to see it. It’s easy to set a separate account up: typically you would have an account in your name eg Joanne Smith but trading as eg Joanne Smith Associates.
There are very few difficulties in working out how to be self employed. You do not need to register a trading name but you can if you wish to so as to protect it.
Self employed people are often referred to as sole traders although they don’t have to mean the same thing. A self employed person can be in partnership with someone else and an individual can trade on his or her own through a company. But if you have questions about sole trader tax and accounts, or you need a sole trader tax calculator, the information in this guide should help you.
Registering as becoming self-employed
You’ll have to tell HMRC that you are self employed although this is straightforward. You don’t have to register as soon as you start self employment – you have until the 5th October in the second year of trading – but it’s a good idea to do this as early as possible.
Once you’re registered, you’ll have to keep adequate records of your sales (turnover) and any outgoings associated with your self employment.