64% of UK workers want to start their own business, according to recent1 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 organisation brings with it a range of benefits - including flexibility, financial control, and freedom to shape your business the way you want.
If you are thinking of taking the plunge – 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 will 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.
Limited company or sole trader – what’s the difference?
Most self-employed people set up as a limited company or a sole trader. If you operate as a sole trader, everything is owned and controlled by you personally. 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 on becoming self-employed.
How to register as self-employed
Once you have decided the financial and operational structure of your business, you will need to register your company. Whether you are a sole trader2 or limited company,3 the information on the government website takes you through the process. Then it’s time to look at the financial details.
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 are 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.4
Even if you are working from a spare room in your home, you will need some form of insurance. Income protection and critical illness policies mean you are covered if you get ill or unable to work - and you will need public liability insurance to cover any accidents. According to the 2020 UK Cyber Security Breaches Survey,5 46% of businesses suffered a cybersecurity breach or attack in the last 12 months so it’s important to invest in cyber insurance. More information on the different types of cover is available here.
How to do your self-assessment
If you are self-employed, you have to self-assess your tax contribution to the UK economy. You will need your own company profile on the government website6 to complete your tax return, having registered to do this when you founded your business. It’s quite a simple process, but 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.
There were over 4.5 million self-employed professionals in the UK last summer7, even during a year of economic and political instability. That figure is likely to rise as we start to recover from COVID. The key is to have your self-employed checklist ready from the off, and ensure your financial administration is organised before you take the leap.
Quotes from well-known and specialist insurers, including: