If you have decided to get rid of the boss who keeps breathing on your shoulder checking on your PC screen, congratulations then. You are one step ahead to become your own boss. However, with the joy of being your boss you have extra responsibilities to bear. And one of them is to deal with your own tax.
When you are employed you do not need to worry about your tax as tax and national insurance is deducted at source and paid by your employer. When you are self-employed you need to calculate your own tax, submit your tax return to HMRC and pay tax on time.
Some basic information will give you an idea about how your taxes will be dealt with. You can operate your business either as a sole trader or through a company.
If you are running your business as a sole trader, you need to inform HMRC soon after you start your business. HMRC will then issue you with a unique tax reference number which you need to keep safe as you will need this number when you submit your tax return. For a sole trader tax year runs from 6 April to 5 April and by following 31 January you have to submit your tax return and pay tax, if any, to avoid penalties.
If you prefer to operate through a company, then you need to open one. Once you open the company, Companies House will issue a registration number for the company and will inform HMRC. HMRC will issue a unique tax reference for the company which the company will require to submit its tax return. A company need to submit accounts to Companies House. Also company need to submit corporation tax to HMRC to pay their tax. As a company director you may need to register with HMRC, if you have taxable income from the company.
We will discuss more about choices between sole trader and company in our next blog.