When most people start heir own business they will set up as a self employed self trader. This means that you will be trading as yourself and the business does not have its own identity. This is very useful because you can set up your business very quickly.

If you are employed by someone at the moment then it's also possible to register as a sole trader so that you can establish your business when you have extra time. This is an easy way to set your own business up and decide whether or not it's a good idea.

When you want to be self employed there are a number of different things that you need to remember.

Registering as Self Employed

You are responsible for paying your own National Insurance and Tax. You must register yourself as self employed within three months of starting. You have to do this even if you work somewhere else because otherwise you could be fined £100.

You can register easily by using an online form or calling HMRC. The contact number for HMRC is 0845 915 4515.

When you do this you will also need to start paying your Class 2 National Insurance contributions. These are paid every three months and can be paid at the post office. The rate is currently £2.40 per week. You can also opt to pay national insurance contributions by direct debit which will make it easy to manage your cash flow as the money will be taken weekly rather than every three months. You will also need to pay Class 4 National Insurance contributions if you make over £5,715 per year.

If you make under £5,075 per year then you do not actually need to pay any national insurance contributions. To get around this you need to apply for a certificate of small earnings exception. You can however opt to pay these contributions anyway as a way to be entitled to a state pension and various other benefits.

Registering for VAT

If your business will turn over more than £70,000 per year then you will need to register for VAT. You need to always make sure that you apply if you need to register.

You must tell HMRC once you reach this threshold within 30 days. If you fail to do this then you could be fined.

If you register for VAT then you will need to keep very detailed records and also submit VAT returns every quarter.

Applying for a Bank Account

If you are a sole trader then you will need a separate business account to keep everything separate. This will make it much easier to keep records for your business.

Read our forum about applying for a business bank account to make this much easier.

Keeping records

All businesses must keep accurate records and ensure that they are regularly up to date. All of the transactions in your business must be recorded accurately to avoid any problems.

When filling out a VAT return or annual return you will find that having all of your business records to hand will be much easier.

Insurance

You should also decide whether or not you need to use insurance to protect your business. You might want to consider public liability and professional indemnity insurance.