National Insurance
When becoming self-employed you must register with the Inland Revenue for Class 2 National Insurance within 3 months after the month in which you start up, or risk a fine of £100.
If you’re self employed you usually have to pay class 2 and 4 National Insurance unless, at the beginning of the tax year, you are over state pension age, under the age of sixteen or not a resident of the UK for tax reasons. If you have income from employment as well, there are limits on the total Class 1, 2 and 4 contributions you pay.

By registering yourself as a company, as director and shareholder, you can reduce your income tax bill and avoid paying National Insurance completely, by paying yourself a salary. This would be limited to the personal allowance of just over £93.87 per week. You would then pay the rest of the money to yourself in dividends. Also, by operating as small business, you do not have to pay corporation tax on the first £10,000 of profits.

Tax
Any self-employed person is legally required to keep all records relating to their tax return for 5 years starting from January 31st of the tax year. Your business Accounts should be worked out on an accruals basis, taking into consideration the money not yet paid or received.

Tax is to be paid on your yearly takings less allowable business expenses, capitol allowances and losses. When buying business equipment you can usually claim 40% as a first year allowance. If this item will be used over a long period of time, its cost should be spread across the period of its useful life, rather than deducted in full the year you buy it. You must keep a running record of all capitol assets bought and what you already claimed for in previous years. This will be your ‘capitol pool’, and at the end of each year you can claim up to 25% of its value.
If the capitol asset will be used over a short period of time you can claim immediate relief, providing disposal is within five years.

You have a personal allowance in which you are entitled to earn before paying a penny. This figure is currently £4,895 per year.
In the first year of business, you are taxed on profits from the date you started, to the end of the tax year (April 5th).
Under the opening year rules, profits called ‘overlap profits’ are taxed twice. You can eventually claim this overlap back, but not until you close down your business or move your accounting date to later on in the tax year. It could be years before you claim, and in the meantime inflation erodes its value.
In the second year of business you are normally taxed for the 12 months up to the accounting date that falls within that year.
In the following years you are taxed on the normal current year basis. Profits are taxed for the accounting year ending during the tax year.
In the year you close down, you are taxed on profits from the accounting date of the previous year up to the date of closure, less any overlap profits brought forward. When you are in the last 12 months of business, your losses can be set against the previous 3 years profits.

You must register for value added tax (VAT) if, at the end of any month, your taxable profit is over a set limit. £58,000 is the limit for 2005-2006.
If part of your house is used for business only, you could claim a percentage of your council tax as an allowable expense.
If your business has a taxable profit of £150,000 or less, you may be able to register for a flat-rate scheme. This way you don’t have to keep full vat records. Your VAT would be calculated as a percentage of the previous taxable profit.

Sponsorship Opportunities

From my point of view as a session guitarist, companies would be throwing sponsorship at me, but only if I was playing with top acts. These companies want their equipment to be displayed in front of thousands of people, so they would be trying to convince me to use their brand.