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Setting up your business: A guide for Freelancers

So, you've decided to embark on the journey of freelancing in the vibrant world of hair and beauty. Congratulations! Here, we'll provide you with the latest insights and essential steps to set up your business as of 2023.

Getting Started

First and foremost, to legally operate as a freelancer, you must register as self-employed. You should complete this step within three months of working for yourself and receiving your initial payment. Head over to the gov.uk portal to register as self-employed with HMRC. Create your account by entering your details and make sure to keep a record of your ID and password.

After your account is processed, HMRC will provide you with your UTR (Unique Taxpayer Reference). Safeguard this reference because you'll need it frequently for transactions and inquiries. Additionally, you'll receive another letter containing your account activation code. This code allows you to access your account and set up your tax and National Insurance contributions as a self-employed professional.

Remember, you may also need to register for VAT if your annual turnover exceeds £85,000. Turnover refers to your total earnings from serving clients during the accounting year before expenses. Plan accordingly to accommodate the additional costs associated with VAT if you anticipate reaching this threshold.

Top Financial Tip

Open a separate savings account as part of your business account and allocate any VAT earned from your services to this account. This practice ensures you don't accidentally spend this money and provides a reserve for your quarterly VAT returns.

Key Dates for the Tax Year 2023

Stay organised by marking these key financial dates for the tax year:

  • 6 April 2023 – Commencement of the new 2023/2024 financial year
  • 31 July 2023 - Deadline for payments on account for Income Tax
  • 31 October 2023 - Deadline for postal submission of Self-Assessment tax returns for the tax year ending 5 April 2022
  • 31 January 2024 - Deadline for filing Self-Assessment Tax Returns for the tax year ending 5 April 2023
  • 5 April 2024 - Conclusion of the 2023/2024 financial year

Setting Up a Business Bank Account

While it may seem convenient to manage personal and business finances from the same account initially, it can lead to complications in the long run, particularly in terms of business accounting. Therefore, we recommend establishing a dedicated business bank account. This makes it easier to track all your income and expenses, as well as manage your salary.

For self-employed hairdressers and beauty therapists, it's crucial to set money aside as you earn to cover tax, National Insurance, and, if registered, VAT. This avoids the stress of facing a large tax bill at the end of the year. We suggest opening a savings account alongside your business account to prevent spending these funds throughout the year. Setting aside around 25-30% of your income should typically cover tax and NI payments.

Keep in mind that the current personal allowance before you pay income tax is £12,500, allowing you to pay yourself up to £1,000 per month tax-free.

Additionally, remember that as a self-employed professional, you can claim expenses. Keep all your receipts for your accountant or to digitize using your chosen accounting app. Eligible expenses include hair and beauty products, uniforms, travel, training, marketing, insurance, phone expenses, fuel, accountant fees, and office equipment. If you're VAT-registered, you can also claim back VAT on business-related purchases. Consult your accountant for specific details on what items qualify.

Additional Considerations

These are the fundamentals for setting up your freelance business. However, you'll need to consider other aspects like whether you'll be a mobile freelancer, renting salon space, setting up a home salon, pricing your services, mastering social media marketing, and your training and upskilling plans. 

Before commencing your freelance journey, it's highly recommended to seek professional advice from an accountant or tax consultant to ensure you're on the right financial path. We're here to support you in every step of your freelance adventure.

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