Becoming self-employed is a massive step but comes with a lot of advantages. As contractor accountants, we know a thing or two about how to take the leap. If becoming a sole trader or contractor is the right move for your career and you’re interested in self-employment, read on. We’re happy to help you figure out how to achieve your goals and become your own boss.
Should You Become a Social Media Entrepreneur?
But first things first. Should you actually become self-employed? It’s important that you figure out whether self-employment is really for you, as this comes with some challenges as well.
Many people imagine that, by becoming an entrepreneur, they can work whenever they feel like or they can take as many holidays as they want – however, there’s still a lot that goes into self- employment, so it’s crucial you’re aware of the work involved. For example, you must be self-motivated, you have to promote your own business (so you need to develop your sales pitch), you must create content regularly, you need to reach and grow your audience, you probably need to spend some time networking, and more.
People who are ready to become sole traders or limited company owners will usually look at the above as challenges that can be overcome, which can help them to stay focused and determined.
Research Everything Thoroughly
Like any venture, it’s important that you put in the work ahead of becoming a sole trader or contractor. Research what this career option will entail and what you need to do to be successful. Create a detailed business plan so that you can decide how to make money, research your competitors, think about how you’re going to market your business, and so much more.
You’ll also want to determine and define your audience, as it’s important to focus on your target market instead of trying to appeal to everyone. Research will also help you to decide how much money to charge for offering services to people and businesses or for any products you create.
Consider the right name for your business as well. Think about it carefully because you won’t be able to change it easily later on, since re-branding can take time and money. There are different rules if you’re setting up a limited company or if you’re dipping your toes into self-employment by becoming a sole trader.
The name of your business can’t be the same as another registered company and, if you choose a similar one, you may be forced to change it. You must also add ‘Limited’ or ‘Ltd’ to your name. There’s much to consider, so start with plenty of time so that you’re able to perform in-depth research about all aspects of becoming an online entrepreneur or social media influencer.
Register with HMRC
You must tell HMRC when you become self-employed, since this means you’ll be paying tax through self-assessment returns as well as Class 2 and 4 National Insurance contributions. You have to register by 5 October in your business’s second tax year – for example, if you started trading in August 2020, you have until 5 October 2021 to register.
Register with Companies House
If you’ve opted to become the director of a limited company, then you must register with Companies House, the UK’s registrar of companies. Your social media business will be listed publicly, so everyone will be able to see your details, including your registered office address. It’s crucial that you send annual returns and notify Companies house of any changes to your accounts.
Choose Your Operating Structure
Another important decision you should make early on. You must decide whether you become a sole trader or operate through a limited company. Both structures have pros and cons, so ensure that you choose the right one for you.
As a sole trader, you don’t have to worry about issues like IR35, but you also don’t have limited liability, which is something limited company owners benefit from. There’s no separation between you and your business, so you may be personally liable for debts your business incurs. However, you also have reduced admin and don’t have to go through the process of dissolving your company if you decide this isn’t for you.
So, if you’re just starting out and want to see if self-employment is the best option for your career, this can be a good way of doing it.
As a contractor, you’ll likely be more tax efficient because you’ll be able to claim both salary and dividends, your personal finances are not tied to your business’ accounts, and you may have more opportunities for work because some businesses may prefer to work with companies instead of individuals. Of course, you’ll have to contend with IR35 and all it entails, and you also have more paperwork to take care of.
When to Set Up a Business?
If you already have an audience and have started out as a social influencer, you may wonder when it’s time to turn that hobby into a business. When you reach 10,000 followers? Less than that? The truth is that you can turn it into a business when you start making money, whether through affiliate marketing, by promoting products or by having ads on your videos.
Earning money means you’ll have to pay taxes and National Insurance contributions, so make sure you’re ready to take that step.
Get a Business Bank Account
As we’ve seen, when you’re a sole trader, your personal finances are not separate from your business’. In this case, you don’t have to get a dedicated business bank account, though it will make your life a thousand times easier when tax season arrives.
If you’re a limited company owner, on the other hand, it’s mandatory that you set up a business bank account. You can use this account for everything business-related and you won’t need to worry about liability.
Don’t Forget Insurance
You’ll want to get insurance as well, since this will help protect your livelihood. You’ll also have the reassurance and peace of mind you need to run your day-to-day operations, as well as cover for third-party claims and other issues that may come up.
Some policies are mandatory by law, such as employers’ liability insurance, but you only need to worry about this one if you have employees. Most businesses take out public liability insurance as well as professional indemnity insurance, which can help if you’re sued due to advice you’ve given, for example.
Make Sure You Have the Right Skills
Just like knowing how to bake doesn’t mean you know how to run a bakery, loving social media may not translate into a full-time business. It's important that you have the right skills for the job as well as a good business idea, so that you can keep growing. If you don’t feel one hundred percent confident, take some business classes or training courses that can help you.
For example, you may already have a large following on Instagram and know everything there is to know about this platform. However, if you’d like to expand into YouTube videos as well but find them a struggle, you can take a course or speak to other people who’ve already done it. Having a community is important, and so is networking, so don’t be afraid to contact people and businesses and learn what you can from them. It’s all about giving yourself the best chance to succeed!
Hire an Accountant
Finding an accountant who specialises in self-employment is a must when you’re a sole trader or a limited company owner. It will give your business the best chance for success, since the accountant understands your business model and your industry.
A good accountant will be aware of the complexities and demands of your market and can help you to grow your business by making it as tax-efficient as possible.
About Gorilla Accounting
Gorilla Accounting is a technology-driven accountancy firm for sole traders, locums, limited company owners and small businesses. We’ve helped countless self-employed people manage their accounts so, if you’d like a straightforward solution tailored to your business, get in touch at: https://gorillaaccounting.com