By now, hopefully, the money should have started to flow in. And if you haven’t realised already, this is the point when you’ll discover if you’re any good at handling it.A lot of it is down to being positive, confident and organised, and the willingness to put in a few hours thinking about it. You should be strongly motivated: after all, it’s your money and your future that it affects. So why not at least try and you may even surprise yourself, though there’ll always be a minority who get figure blindness and break out in a sweat at the first mention of a balance sheet.

In that case find an accountant you can trust and leave it to them.But stuffing cash under the bed or in a box of onions isn’t an option because:It’s all about managing the money side of your business as painlessly as possible, finding a way that suits you and then sticking to it.

Tax

• You mostly control your own working conditions (how many hours you do, what you do and where).
• You’re free to hire other people to do work you’ve taken on.
• You’ve risked your own money in the business.

The Two Different Systems

It’s important to establish your status (self-employed or employee) because it will affect how the income tax is calculated, how much you’ll pay and when you pay it.

If you’re self-employed:

• You’ll be taxed on your business’s profits after any allowable expenses have been deducted (see below).
• You’ll be responsible for paying your own tax.
• You’ll be responsible for paying your own National Insurance.
• You (or your accountant) will have to complete an annual tax return.
• You’ll pay tax twice a year, in equal instalments in January and July. The figures will be based on your previous year’s tax bill.

If you’re an employee:

• You’ll pay income tax at the usual rates on the salary you draw from the business (2004/05: there are bands of 10, 22 and 40 per cent on earned income above your personal allowance. The higher rate cuts in at more than £31,400 pa).
• You’ll also be taxed on any dividends or benefits you receive from the company, any return on your investment, and on any loan the company may make to you.
• You may not have to fill in a tax return.
• You’ll pay income tax and NI monthly through your pay, or weekly if you’re paid weekly.

It is possible to fall into both camps if you’re employed some of the time and also carry out freelance work. Gardeners, for example, may work for a nursery or horticultural supplier while at the same time having their own private clients. If this applies to you, speak to your accountant about the simplest way to structure things.

National Insurance

The type and amount of National Insurance you pay is also decided by whether you’re self-employed or an employee.

If you’re self-employed:

• You have to pay Class 2 contributions (2004/05: £2.05 pw).
• You also have to pay Class 4 contributions (2004/05: 8 per cent of your annual profit between £4,745 and £31,720, and 1 per cent on profits above that.

If you’re an employee:

• You have to pay employee’s Class 1 contributions. This is called PAYE, or Pay As You Earn (2004/05: 11 per cent of weekly earnings between £91–£610, and 1 per cent on earnings above that).
• Your business has to pay employer’s Class 1 contributions for you and any other employee (2004/05: 12.8 per cent of employee’s weekly earnings above £91 pw).

There’s no argument when it comes to NI. By law, anyone in business has to pay it. The only exceptions are if your earnings or profits are below the small earnings exception limit or if you’re over retirement age.

There’s an Inland Revenue helpline to answer contributions queries from the newly self-employed. The number is 08459 15 45 15.