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Becoming self-employed

A step by step guide to the self-employment process

Contents 03 About us 04 Getting started 06 Building habits 08 Understanding key tax deadlines

11 Future safeguarding and planning

12 Next steps and final thoughts 14 Appendix A: How to register and administer a UK payroll scheme

17 Appendix B: Registering and administering a CIS Scheme

So, you want to become self-employed We’re here to turn what feels like a leap of faith into an exciting step forward in your life. You’ll likely feel overwhelmed at first, but before you know it, you’ll have found your feet and will be enjoying the benefits of being your own boss. This guide takes you through the key steps to self-employment. From getting started, to building habits, understanding compliance, and even future planning, we’ve got it covered. Read on for practical tips and useful timeframes as well as specific links to the exact services you’ll need.

Getting started Choose your business structure Before you register, it’s essential to decide on the right legal structure for your business – this will impact on your tax, liability, administration, and growth potential. The most common forms for new businesses are: • Sole trader • Limited company • Partnership Each structure has different registration processes, tax obligations, and personal liability. Read our article to weigh up the pros and cons of each, or speak to one of our advisers to help you choose the best option for your plans. This guide covers relevant information for all of these structures, but is primarily aimed at those with a sole trade. However, for more information, especially if 4

you’re considering starting a partnership or limited company, please get in touch. Develop a simple business plan Getting your thoughts down on paper will help you stay accountable in reaching your goals. Even just one page of A4 can make a substantial difference to your business’s performance. When creating your plan, it’s important to consider the following points: •

Your service or product offering

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Target market and pricing strategy

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Expected start-up costs and desired income

This will help you to establish your business’s core principles. Remember to update your plan as you learn from experience, but make sure you don’t move the goalposts for any targets you’ve set.

Register with HMRC for Self Assessment To report profits and pay Income Tax: 1. Sign up for Self Assessment on the GOV.UK website 2. Receive your Unique Taxpayer Reference (UTR) and keep this safe for future reference 3. Set up your Government Gateway account Key deadline: Register by 5 October following the end of your first period of trading to 5 April. You only need to do this once. Filing a Self Assessment tax return Once registered with HMRC you’ll be able to file a Self Assessment tax return to report income liable to Income Tax, Class 2 National Insurance (NI), and Class 4 NI. If you’ve previously registered for Self Assessment but are unsure of your UTR, you will need to contact HMRC or visit the government website – do not attempt to re-register.

Register for VAT (if applicable) You must register for VAT if your taxable turnover exceeds £90,000 in a 12-month period, or if you expect your taxable turnover to exceed £90,000 in the next 30 days: •

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Choose between Standard, Flat Rate or Cash Accounting schemes

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Submit VAT returns quarterly or monthly via HMRC approved Making Tax Digital (MTD) compatible software

Where taxable turnover is below £90,000 you can make a voluntary registration. Under HMRC Making Tax Digital (MTD) guidance, if you register for VAT, you must ensure your electronic records are kept within MTD compatible software such as Xero, FreeAgent or QuickBooks.

Building habits Open a business bank account Keep personal and business finances separate to aid your record keeping process: •

Compare banks and open an account

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Look for compatibility with integrated invoicing or accounting software

Set up accounting and record-keeping Get into good habits from day one, even where electronic record-keeping is not mandatory:

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Use MTD compliant accounting software to record your income and expenditure

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Keep digital copies of receipts and invoices using bookkeeping software

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Link software to your bank account for efficient record- keeping

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If you’re VAT registered, use your software to submit VAT returns to HMRC, adhering to required filing dates

Per HMRC guidance you must retain financial records for at least six years whether you use a cloud-based or manual record storing approach. As part of the roll-out of MTD for Income Tax, all sole traders and landlords whose income exceeds £30,000 annually will be required to keep digital financial records and report these to HMRC quarterly from April 2027. Where income exceeds £50,000, these rules apply from April 2026.

Establishing an efficient credit control process •

Number your invoices sequentially for easy reference

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Include your VAT number (if registered)

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Include your UTR number (if a registered sub-contractor)

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State payment terms (e.g. 30 days from invoice date)

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Confirm and provide details of accepted payment methods (bank transfer, online payment links)

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Utilise your accounting software to prepare your invoices for you on a pre-designed template for consistency and clarity

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Review your position with regard to outstanding invoices regularly and consider automation options for payment collection

Register for PAYE and CIS (if applicable) If you intend to employ staff within your business, you will need to register and administer a payroll scheme. Consult Appendix A for more information on this process. If you intend to undertake sub-contracting activities or engage in activities as the main contractor, you will need to register and administer the Construction Industry Scheme (CIS). Appendix B provides further detail on this essential step. If you employ staff and provide employee benefits you may also have further obligations with regards to reporting these. Speak to an Old Mill adviser if you’d like further information on this somewhat complicated step of the self-employment process.

Understanding key tax deadlines The following dates correspond to regular deadlines which must be adhered to to avoid penalties or interest for late filing and payments. Activity

Deadline

Submit Self Assessment return

31 January (following previous 5 April)

PAYE payment (if you employ staff)

22nd of each month (for online payments)

CIS payment (if you are a contractor)

22nd of each month (for online payments)

VAT return submission and payment

One month + seven days after period end

You can also set up a Direct Debit (DD) with HMRC so they can automatically take the money you owe in Pay As You Earn (PAYE) and VAT from your account in line with the above deadlines. These can be set up through your Government Gateway account. Paying personal tax Whilst your Self Assessment return is due for submission by the 31 January following the previous 5 April, payment of your tax may be due in advance. Payments on account are advance instalments towards 8

your next Self Assessment tax bill. Instead of a single lumpsum payment after the tax year ends, HMRC splits your estimated liability into two equal parts. You’ll be required to make payments on account if both of the following conditions apply:

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Your last Self Assessment tax bill exceeded £1,000

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Less than 80% of your total tax was collected at source (for example, via PAYE)

Each payment on account is half of your previous year’s total tax bill. Payments on account are due for payment at two fixed deadlines each year: 1. First payment on account: by midnight on 31 January 2. Second payment on account: by midnight on 31 July Missing these deadlines can result in interest charges on late payments, so it’s important to mark them in your calendar (no DD feature on these).

After you submit your return for the new tax year, HMRC recalculates your actual liability. If your two payments on account fall short, you’ll make a ‘balancing payment’ by 31 January following the end of the tax year. Conversely, if you’ve overpaid, you can reclaim the difference (or offset it against future payments). If you expect your income to drop significantly, you can apply to reduce your payments on account per your estimations so you’re not overpaying. Be cautious however, as underestimating your final liability can lead to interest on any underpaid tax – it’s advisable to speak to a professional before proceeding. 9

Future safeguarding and planning Insurance and protection Protecting your business is vital. Essential safeguarding methods to consider include: •

Professional indemnity insurance

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Public liability insurance

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Employers’ liability (if hiring staff)

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Looking ahead to your eventual retirement remains essential regarding your employment status, and it doesn’t hurt to look at other smart ways to save money too. It’s worth considering: •

Making contributions to a personal pension

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Ensuring your earnings constitute a qualifying year for your future state pension entitlement

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Opening a savings contract, ISA or investment account to build liquid assets

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Life and critical illness insurance policies to protect yourself and your family

Equipment or business interruption cover

Speak to a specialist broker to find out which types of cover are most suited to your company. Planning for pensions and savings As you may have suspected, self-employed workers don’t benefit from automatic workplace pension contributions.

Our financial planners can help identify the most beneficial options for both your business and personal plans.

Next steps and final thoughts Consider your position on data protection compliance If you handle personal data, the Information Commissioner’s Office website serves as a good resource for any queries. Familiarise yourself with learning and professional development terms Your industry’s governing body’s terms are constantly changing, so check them on a regular basis to ensure you remain compliant. Track key performance indicators Keeping tabs on your core cash target, gross profit margin and revenue per employee can be the key to business success. Old Mill’s Success Programme is a reliable starting point to understanding these numbers.

Consider outsourcing Partnering with experts is a smart way to free up your time so you can focus on what matters most. By outsourcing any tasks that require specialist skills, you can concentrate on your own areas of expertise. How to decide what to outsource: 1. Map your core vs non-core tasks •

Core tasks directly generate revenue or differentiate you

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Non-core tasks are repetitive, routine, or outside of your expertise

2. Calculate time vs value •

Estimate hours spent each week on each task

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Prioritise outsourcing anything that takes you away from high-value activities

Possible services you could outsource include: •

Bookkeeping and payment collection – Ask us how Brook Financial can help

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Payroll processing – Ask us how Brook Financial can help

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Phone answering services

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IT support

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HR and employment support

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Marketing and SEO activities

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Content creation

We hope this guide has helped you to build a solid administrative foundation and left you feeling ready to take that leap of faith. For more support or information, visit our website, or contact us via the details on the back of this brochure. Good luck on your selfemployment journey.

Appendix A: How to register and administer a UK payroll scheme Correctly administering payroll and registering your PAYE scheme are essential steps to ensuring you stay compliant if you intend to employ staff within your business. Registering your PAYE scheme 1. Begin your registration Log in to your Government Gateway ID and choose ‘Add taxes → PAYE for employers’ to begin registration. If you don’t already have one, register for a Government Gateway user ID and password on the HMRC website. Once your credentials are active, log in and choose ‘Add taxes → PAYE for employers’ to begin registration. 2. Register as an employer with HMRC Within PAYE Online, complete the employer registration form. You’ll need your business’s legal structure, proposed payroll start date, 14

and Director details. You must register before your first payday and allow up to 10 working days for processing. 3. Receive and activate your PAYE references HMRC will post your Employer Reference Number (ERN) and Accounts Office Reference (AORN). Return to ‘Add taxes → PAYE for employers’, enter your ERN and AORN, then input the activation code HMRC sends you to fully activate your scheme. Choose and set up payroll software After registering, decide whether to run payroll inhouse or outsource to a bureau. If you plan to do it yourself, make sure you use HMRC-recognised software that can:

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Record employee details, gross pay, deductions, net pay, and statutory payments

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Generate payslips and submit Real Time Information (RTI) via Full Payment Submission (FPS) on or before each payday

Popular HMRC-compliant platforms include BrightPay, IRIS Payroll Professional, Xero Payroll, and Paycircle. Running your payroll scheme 1. Gather employee data Collect each employee’s National Insurance number, P45 (if applicable), tax code, bank details, and pension status. 2. Process each pay period Use your payroll software to calculate gross pay, Income Tax, National Insurance, student loan deductions, and pension contributions. Run your Full Payment Submission to HMRC on or before the payday you’ve set.

3. Pay HMRC and issue payslips Transfer the tax and National Insurance due by the 22nd of the month (19th if paying by cheque) and issue payslips to employees by the agreed payday. 4. Maintain records Keep payroll records— including employee details, pay, deductions, and statutory payments—for at least three years after the end of each tax year. Managing pension autoenrolment •

Assess staff eligibility against staging dates and earnings thresholds

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Choose a pension provider (e.g. Nest, People’s Pension) and set up an employer account

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Enrol eligible employees, calculate both employer and employee contributions, and report via your provider’s portal each pay run

Year-end duties and compliance •

By 31 May, issue P60s to all employees showing total pay and deductions for the year

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Submit your final FPS and (if needed) an Employer Payment Summary (EPS) to HMRC to reconcile apprenticeship levy, statutory payments, or pension refunds

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Review tax code notices, National Minimum Wage updates, and any changes to statutory pay rates to prepare for the new tax year starting 6 April