If ‘Dragon’s Den’ and ‘The Apprentice’ have taught us anything, it’s that enthusiasm plus a creative idea does not always equal a successful business! But for students, self-employment can be the best solution to the old funding problem. No more long hours for minimum pay and you can completely control of your own timetable of work and study.
You are in the most creative and truly collaborative social space of your life, so ideas are not the issue. But this needs to be combined with factual knowledge about the tax system and the laws around being officially self-employed. Rather a daunting prospect!
The sheer amount of available information is overwhelming in itself, never mind actually identifying the legitimate and useful. So, we have put together this basic guide to prepare you to take your business from lightbulb moment to regular income.
Stuff you just need to know
The government department in charge of administering tax procedures is called Her Majesty’s Revenue and Customs, or HMRC to its friends. And you will become its friend.
HMRC has its own language that you need to start learning. It assigns very specific definitions and a whole host of regulations to particular words or phrases. So let’s get some of the basic vocabulary identified and if you have an accountant they can translate whatever else you need as you develop.
Your basic HMRC-English Dictionary
HMRC consider that you are a ‘trader’ if you frequently sell services or goods in order to make a profit and you fulfil any of these criteria:
- Get paid for delivering a service
- Sell things you have made for a profit
- Sell items for other people on a commission basis
- If you often sell at car boot sales, through classifieds or online. (This doesn’t mean the odd item or a batch of stuff once a year when you move flats.)
This is the most uncomplicated way to set up as self-employed. As an individual you are responsible for the business.
A business partnership has similar rules to a sole trader but just has two or more people holding responsibility.
This is a more complex way to establish your business. The company becomes an entity in its own right and you become both its owner and employee. It is recommended to get in touch with an accountant if you’re thinking about this option.
This is when an existing business sells you the right to run one of its branches.
This is a different business model which involves multiple people who all have ownership and authority.
Most student businesses are set up as sole traders or business partnerships. HMRC considers self-employment to mean:
- You intend to make a profit by selling services or goods.
- You have responsibility for how well your business does (or not!) because you run it yourself.
- You have the freedom to choose where, when and how you do the work involved.
- You have multiple clients simultaneously.
- You have employees that you pay.
- You are responsible for having any necessary equipment needed to complete the work.
- Your charges are a fixed price that is agreed by each client.
- You have the responsibility to correct any mistakes in your work at your own cost.
Many of these factors would be part of the definition of a limited company but, because you would then be classified as an employee and owner of the company, you would not be considered self-employed.
You can be both self-employed and employed at the same time. For example, you work in a café during the day and make jewellery to sell in the evening.
Have you found this article helpful? Join us next week for part 2!