If you’re at the point where your skill, passion or side hustle seems to be a viable means of self-employment, congratulations! This is your first big step to entrepreneurial success and it’s a super exciting time.
You know you want to be self-employed. You’ve got reason to believe it’s going to be a great move. What you need to navigate now is how to enter the wonderful world of self-employment and we’re here to guide you.
Should I just stick with a side hustle to start with?
This is entirely up to you! Lots of self-employed people start out working for an employer whilst running ‘Operation Work For Myself’ in their spare time. This does have its benefits, because you’ll still be able to rely on the cushion of regular wages to support you while you set up your self-employed project.
It’s also an opportunity to soak up any transferable skills like leadership, business marketing, networking, and time management to benefit your own business.
Will my employer know if I have a side hustle?
Some side-hustlers are concerned that their employer will find out about their side project through their tax code, but this is usually not a problem you need to worry about.
Unless you tell your employer about your activities outside of work, there’s no reason they should find out if you don’t want them to. Unless, of course, you incorporate a limited company. That information will be made publicly available on the Companies House register – but your employer will need to go looking in order to find it.
That said, if your employment contract stipulates you can’t have a side hustle while working at that company, you need to consider this carefully. Breaching your contract could be bad news for your income and professional reputation.
Potential for a gradual exit
If you can be open and honest with your employer about wanting to make the transition into self-employment, they may even agree to a gradual exit period so that the leap into self-employment is more of a big step.
They may allow you to work part-time hours, for example, so you can do a thorough handover with your replacement. That way, you can still benefit from the security of a partial salary too.
From side hustle to self-employment
Although there probably won’t be a perfect moment to become your own boss, careful planning and analysis will help.
Some of the most common signs that it’s a good time to take the plunge and turn your side hustle into fully fledged self-employment are:
- Time: You’re missing out on opportunities and your self-employment venture is stalling as a result of the demands of employment.
- Flexibility: Your employment schedule is too rigid for you to work on your own business
- Work-life balance: You’re dangerously close to burnout most of the time and not performing to your full potential in any area.
- You’re ready to employ staff: You’ve got the demand and resources to expand already
- You’ve secured funding: You have access to a cash injection that means you don’t need to rely on the security of wages during the next phase of your business.
Some other common signals might include a lack of progression opportunities with your employer, or the chance to start a business or join an existing one with someone else.
When do I need to register as self-employed?
The good news is that the Trading Allowance means you can earn up to £1,000 of ‘miscellaneous’ income in a tax year, without needing to tell HMRC or pay tax on it. Once you cross that threshold though, you’ll need to register as self-employed, even if you’re only running a side hustle.
The way that you register your business depends on the type of business structure you use.
Your business structure refers to the legal structure which defines how your business is operated. It’s very important, because this influences how you set it up, what taxes you need to pay, and even who you need to tell. The most common types of business structure include:
- Registering as a sole trader
- Setting up a limited company
- Running a partnership (you’ll need a friend!)
They each have their considerations depending on what you need, and your personal circumstances.
When do I start paying tax?
The way that you pay tax also depends on the business structure you use to register the business. You’ll normally need to submit a tax return to tell HMRC about the money your business made during a reporting period, and then pay tax based on your profits.
Will I need to register for VAT?
You won’t necessarily need to register for VAT as part of the initial self-employment set up process, although some businesses find that registering on a voluntary basis can be tax-efficient.
You only need to register for VAT once your taxable turnover exceeds the official threshold, which is currently set at £90,000.
Making a smooth transition into self-employment
Below are some of the less glamorous parts of venturing into self-employment that, although they might not be as fun as things like branding and marketing your business, are outrageously important for a smooth transition. Sit tight, it’s time for the grown-up stuff.
Secure the right licenses, permits and insurance
Depending on the scope and nature of your business, you may need to secure some kind of licence or permit when you go self-employed. Lots of businesses also benefit from some form of insurance cover.
Not all businesses will require this, but some will. A self-employed driving instructor, for example, will need a specific license and additional insurance cover. Somebody who owns a food truck and sells food to the public, as another example, will also need to acquire specific accreditation such as a food hygiene certificate.
General examples of the types of insurance you might need to explore include:
- Public liability
- Employer’s liability
- Professional indemnity
- Product liability
- Contents insurance (mainly if you have business premises and equipment)
- Business interruption insurance (COVID was the perfect example of when this type of cover is vital)
Get ready to keep a record of all your finances
Going self-employed means you are responsible for managing your own financial accounts in order to report and pay tax on your earnings. You’ll need to record the transactions which happen in your business, and use this information to help you complete your tax return.
There are lots of ways you can do this, but (obviously) great bookkeeping software (like Pandle) will make your life a whole lot easier!
Learn more about how Pandle can support your transition into self employment. Set up your free account today to get started.
