When starting up a business there are different types of business you can set up. These are becoming a ‘Sole Trader,’ meaning you are self-employed and runs your own business. A ‘Partnership business,’ meaning two or more individuals share the profits and management. Or you can set up a ‘Limited Company,’ in which the members of the company are limited to their stake of the company via investments etc.
There is a possibility that in the future I may want to become a freelance photographer and therefore become self employed. Some important factors you need to know when starting up a self employment business is that it may take you a while to get clients. Relying on your business straight away may not be the best idea so to have a part time job elsewhere in the mean time. This will come with time and it is important to remember to have confidence in yourself, to be realistic and to have the ‘likability factor’ which will come if you communicate well.
Once registered with HMRC that you have began a sole trader business, it is important to pay your taxes correctly. Keeping records of sales and income, business expenses , VAT records (if registered) and personal income is important as you are able to claim tax back on equipment for your business such as tools, which is known as ‘Capital Allowance.’ petrol and marketing can also be claimed back on your tax. This is known as ‘Allowable expenses.’
When paying tax it is advisable to hire an accountant to do the maths. They will be able to work out how much tax you need to pay for the year by providing them with your earnings and receipts of expenses to the business.
Earning up to £12,500 means you do not have to pay any tax and you will not be charged for this amount. If you earn higher than this, for example £12,501 - £50,000 then you pay 20% on the money you make that exceeds £12,500. If you start earning over £50,000 then you will be in the higher tax bracket to pay 40%. Anything over £150,000 and you will be placed in the additional tax bracket at 45%.
Tax can be very complicated but is something that you need to get right, otherwise you can fall into trouble!