the richest man in atherstone

A little over a week ago, I registered as self-employed with HM Revenue & Customs.

Now that I am earning hundreds of pounds from my money-making ideas ideas (rather than just a few extra quid as in previous years) it seemed like the right time to put them into a more taxman-friendly structure. Additionally (and more importantly to me), one of my goals for 2008 is to set up and run my own business. This was also on my goals list for 2007 but procrastination and apprehension resulted in it not being completed. I was determined not to let that happen again this year.

My initial plan was to set up a Private Limited Company, but the additional costs and administration soon quashed that idea. I got a few quotes from accountants and realised that it would take a big chunk out of my projected profits if I were to run a Ltd Company and the over-complicated tax-structure in the UK would be too big a learning curve to do the accounting myself. I also found that the legislative responsibilities required to run a Limited Company would take up a lot of my time and/or money - time and money that I think would be better spent on the business's growth during it's infancy. At this point in time, I felt that the best course of action would be to trade as self-employed with a view to incorporation in the future, once profits are large enough to cater for the additional requirements.

Before registering as self-employed, I did a lot of research into the responsibilities of running a business as a sole-trader from home and would like to share the process I went through in the hope that it will help someone in a similar position. Of course, this article is no substitution for your own research and due-diligence but it will hopefully provide you with a few pointers in the right direction.

Homeworking
The nature of my work meant that a lot of the regulations and legislative requirements of running a business were not applicable to me. Being a one-man-band, I don't have to worry about employment law and tax for employees, my own wages being withdrawn directly from the business.

I checked the smallprint on my mortgage to make sure there were no conditions preventing me from running a business from home - fortunately there wasn't. I also checked my home insurance policy. Business items are not insured, however this wasn't an issue as my business assets are primarily the websites I run. The only other thing is my laptop, which is also a personal item and therefore covered. The data on my laptop is probably more important than the laptop itself, however making regular backups and storing them at another location (my mum's house) should mean I won't have to change the policy.

I thought that working from home would mean that I would have to pay business council tax rates on my house, but after a quick phone call to the local authority I discovered that one guy sitting at home with a laptop is not liable.

Banking
I opened an Alliance + Leicester Premier Direct Current Account last year as part of my Doubling Project. I believe that this is the ideal bank account for anyone starting a small business as a sole trader. This account pays a whopping 8.5% on all balances below £2500 - a rate which is fixed until April 2009 - and comes with a 0% overdraft for the first 12 months. A deposit of at least £500 is required each month, but if cashflow is poor, you can easily use the overdraft to bounce £500 to another bank account and back again. It is not a bona-fide business account, so cheques and deposits cannot be written in the name of the business, but this was not a problem for me as everything is set up in my own name.

Stationery
All business stationery such as letters, invoices etc. must display the name of the business owner and address of the business by law. I also wanted to include my business name, logo, telephone, website and email address on all external documentation. I used OpenOffice - a free suite of business tools similar to Microsoft Office - to create a few templates for the business. This included a standard letter template, standard email template and a basic template for internal documentation.

Trading
Trading under a business name that is the same or very similar to another business could lead to legal wranglings in the future, so I did a few checks to make sure no-one else was using the name I planned to use for my business. I did a check on Companies House website for other Limited Companies as well as doing a Google Search to see if it was being used by anyone else. Fortunately, nothing turned up.

It is also necessary to become acquaited with a few pieces of legislation when trading including the trade descriptions act (how you allowed to describe goods and services), the sales of goods act (how to deal lawfully with sales, returns etc) and, if trading over the Internet, the distance selling act. It is also important to understand the data protection act when storing the details of customers and prospects.

Health & Safety
Although most legislation with regards Health & Safety will not apply to me (being a lone home-worker), I had to carry out a risk assessment of the area that I was working in, as required by law. Basically, this just meant having a look around for any potential hazards and making adjustments to reduce the risk. As an example, I noticed that the power cord for my laptop could cause a tripping hazard. I reduced the risk by moving my desk closer to the wall where the plug socket resided. Although a risk assessment has to be conducted by all businesses, it does not have to be documented unless there are four or more people working in the area.

Accounting
Accounting is not something new to me as I have been keeping my own personal accounts for a few years now and it is just a matter of transferring my existing system to the business. I aim to keep my business and personal accounts completely separate or sake of clarity. I use a fantastic double-entry book-keeping and accounting package called GNUCash although I must add that this is only available for computers running Linux*. It comes with an accounts receivable, invoicing and receipt system which will help me keep on top of my cashflow.

Income Tax & National Insurance
The final thing to do was to give HM Revenue and Customs a ring to register myself as self-employed. The call lasted around 5 minutes and all that was required was for me to give them my National Insurance Number, the date I became self-employed and my personal details. I will have to pay income tax and national insurance for 2008 after my first year of trading.

Summary
I found that becoming self-employed is relatively easy to do. I must admit there are a lot of things of things that you are required by law to be aware of, however there was a lot of help at hand from goverment and commercially-run websites.

I found a lot of useful information on the Business Link website and they also provide a handy booklet entitled 'The No-Nonsense To Government Rules & Regulations for Setting Up Your Business'. Other resources of note include ByteStart and Startups.

I hope that this brief guide to setting up a business as a sole trader has been of some help to somebody out there in Internet Land. As always, feel free to make any comments below. After all that red tape, I'm off to start doing something a bit more productive...

* - GnuCash is available for Linux, MacOSX and Windows. Thanks jsled.