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How to be self-employed

May 2, 2024

Four in ten adults in the UK want to start their own business, according to recent statistics – and it’s hardly surprising. Aside from the fact that you will probably be doing what you love for a living, running your own business brings with it a range of benefits – including flexibility, financial control, and freedom to shape your business the way you want.

If you’re thinking of becoming self-employed – great news! It’s not an easy decision to make, and it won’t come without a few wobbles, but it’s a brave and exciting move. You’ll need a good support network (find a mentor or three if possible) and an ability to self-motivate. But all being well, it could reap its rewards and end up being one of the best things you ever did.

Your next step is to decide your structure and sort your financials. Self-employment is a key concept to understand in this journey, encompassing over 4.8 million self-employed individuals in the UK. It involves working for oneself, offering services or products, and it's crucial to grasp the implications of self-employed work, including how to pay income tax and national insurance, the support available, before making the leap.

Limited company or sole trader – what’s the difference?

As a self-employed person, you'll probably set up as either a limited company or a sole trader. If you operate as a sole trader, everything is owned and controlled by you. In contrast, a limited company is separate. It allows for more than one director, paying in dividends as well as salaries.

Each has advantages, for more information, take a look at our guide: Sole trader vs Limited company. As a business owner, understanding the different responsibilities and considerations, including legal and insurance requirements, is crucial when deciding between a limited company and a sole trader structure.

Self-Employed Finances

When you're self-employed, you’ll need to think about how you want to manage your business income, and you may want to consider a business bank account. Business bank accounts can give you a secure place to manage your business finances and keep things separate from your personal money.

Self-Employed Checklist

How to register as self-employed

Once you have decided the financial and operational structure of your business, you’ll need to register your company. Whether you’re a sole trader or limited company, the information on the government website takes you through the process. Then it’s time to look at the financial details.

Self-employed expenses

There will, of course, be several running costs for your business, from stationery and phone bills to training and clothing. Depending on your profession, you may have raw materials costs or subcontractor costs. If you’re a sole trader, you can claim allowable expenses as a percentage of your turnover. If you are a limited company, you need to deduct any business costs before tax. You can find out more here.

Self-employed insurance

Even if you are working from a spare room in your home, you’ll need some form of insurance. Income protection and critical illness policies mean you’re covered if you get ill or you’re unable to work – and you’ll need public liability insurance to cover any accidents. 50% of businesses suffered some form of cybersecurity breach or attack in the last 12 months so it’s important to invest in cyber insurance.

How to do your self-assessment tax return

If you’re self-employed, you still have to pay tax, and you'll have to self-assess your own tax contribution to the UK economy. You’ll also need to assess whether you can and should pay national insurance contributions. You’ll need your own company profile on the government website to complete your tax return each tax year, having registered to do this when you founded your business.

It’s quite a simple process, but it can take a while, so many business owners use a local accountant to manage the self-assessment for them. You can save your document online to file at a later date, if this makes it easier.

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