What Are My Responsibilities When Self Employed

With self employment comes the freedom to operate your business as you choose within the appropriate legal structure.

However, with that freedom comes responsibilities, which apply regardless of whether you are :

• A sole trader
• Self employed through your own limited company
• Self employed through an umbrella company

• When you are an employee deductions are taken care of by your employer; self employed workers receive the full salary without any deductions.

HMRC

As a self employed individual, you have the responsibility of ensuring you pay the tax and NICs for which you are liable.

• The first step is informing your local tax office of your change in employment status; if you do not do this straight away you risk incurring a fine.
• Secondly, you must ensure your finances and records are in order. Even though your first tax return may not be due for a year, you must be financially prepared for that day.

There are certain deadlines depending on whether you choose to file your return online (31st January) or by post (31st October).These deadlines are the October and January following the end of the financial year.

• You should make your return as soon as possible so that you are prepared for the payments that you will have to make to HMRC.

All self-employed workers must keep all business receipts, invoices, bank statements and all other paperwork that is relevant to support the tax return for the year. This process comes easier to some than it does to others.

If you are finding it difficult, you should consider hiring an accountant or tax advisor to help you with this process.

VAT

The self-employed rate of income tax is the same as someone who is permanently employed. You will also be required to make Class 2 and Class 4 NICs, which is a different classification to those paid by an employee.

Another responsibility of some self employed individuals is VAT, but this only applies if you earn more than the VAT threshold, a figure which is set by HMRC. 

• Tax year 2011-12 currently sits at £75,000.

If you do earn more than this limit, you are required by law to register for VAT. If you live on the Isle of Man, you need to add up income from both the UK and the Isle of Man to see if you need to register.

It is also worth noting that properties used for business purposes are often subject to business rates, which you will be required to pay if applicable.

Reducing Tax

The benefits of being self employed are sometimes unclear. The primary benefit of self employment is that you are allowed to deduct certain expenses from your income if it relates directly to your business.

These deductions are why it is necessary to keep receipts pertaining to business expenditure; so you can prove these expenses.