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Setting up your business

There are so many reasons for you to consider going freelance but what does it really entail when it comes to the paperwork side of things? Here we share our top tips to get you started.

Where do I begin?
So, you have made the leap and decided to go at it alone. But where do you start?

First of all, you need to register as self-employed (you need to do this within 3 months of working for yourself and receiving payment from your first invoice). Visit the gov.uk portal to register as self-employed with HMRC. Simply enter your details to create an account and be sure to make a note of your ID and password.

Once your account is processed, HMRC will contact you with your UTR (Unique Taxpayer Reference) – you need to keep this somewhere safe as you will often have to provide it as a reference for any payments or enquiries you make – as in, very often, so don’t lose it.

You’ll receive another letter from HMRC containing your account activation code. Use this code to login to your account for the first time. Now you’re able to set up your tax and National Insurance as a self-employed person!

Note; you may also have to register for VAT if your turnover exceeds £85,000 (Turnover is the total amount of money you earn from servicing your clients during an accounting year before taking off any expenses). So, be sure to consider what your earning potential could be in an accounting year to see if you are going to hit this threshold. If you think you will make sure you factor the additional costs associated with this.

Top Tip: Take out a savings account as part of your business account and put any VAT earned from services into this account. This will ensure you don’t spend this money and can pay your quarterly VAT return.

Key Accounting Dates:
Make a note of all the key dates in the financial year ahead. This way you won’t lose track of what you’re meant to be paying and when.

The key dates for the tax year 2020 are:
· 6 April 2022 – first day of the new 2022/2023 financial year
· 31 July 2022 - deadline for payments on account for Income Tax
· 31 October 2022 - deadline for postal submission of Self-Assessment tax returns for tax year ended 5 April 2021
· 31 January 2023 - deadline for filing Self-Assessment Tax Returns for tax year ending 5 April 2022
· 5 April 2023 - end of the 2022/2023 financial year

Set up a business bank account
Although managing personal & business finances from the same bank account may seem convenient in the short-term it can cause a lot of headaches long-term, especially when it comes to managing your business accounting. So, ensure you set up a new account for your business, as this will make it far easier for you to track and manage all incomings & outgoings and pay yourself a salary.

As a self-employed hairdresser or beauty therapist, it’s really important that you put money aside as you earn to cover tax, National Insurance, and VAT (if registered) rather than having to cover a bill quarterly or at the end of the year with no savings. So, we would advise adding a savings account to your business account to help remove the temptation to dip into it over the tax year.

The amount you should put aside varies depending on your income and expenditure but setting aside between 25-30% of your income should be enough to cover tax and NI payments.

It's useful to keep in mind that the current personal allowance before you pay tax is £12,500 which means you don’t pay anything until you’ve earned this amount over the tax year. This means you can pay yourself up to £1,000 a month without having to pay any tax.

Also, be aware that when you’re self-employed, you’re able to claim your expenses, so be sure to hang on to all of your receipts for your accountant or for you to scan into your chosen accounting app.

You can claim back on things like:
· Hair and beauty products
· Uniform
· Travel expenses
· Training
· Marketing and advertising
· Insurance
· Mobile phone and landline - business use
· Fuel and vehicle running costs
· Accountant fees
· Office equipment

If you’re registered for VAT you can also claim back VAT on items you purchase for your business. Your accountant will be able to advise on what items you can claim back on. The VAT amount on your purchases will be deducted from the VAT on your sales, which is what you will need to pay to HMRC after you have submitted your VAT return.

That’s the basics to actually setting up a business, but you’ll have plenty of other things to consider, such as:
· Will you be freelance and mobile or freelance renting a salon chair/space?
· How will you set up your home salon?
· How should you price your services?
· How confident are you when it comes to using Social Media as your key marketing tool?
· How often will you train and upskill?

We cover all of the above and more in our NEW Guide to Going Freelance, which you can download here, or you can simply click on the links above to view individual blogs on each topic.

It is recommended you seek independent professional advice from an accountant or tax consultant before commencing in business.