Self-employment is on the rise. People are choosing to work for themselves for a number of reasons. For some, it’s a chance to realise a dream job; for others it offers the flexibility and freedom that a 9-5 job just can’t match. Some move into self-employment after redundancy and others as a way back into earning money after a career break. Whatever your reason for going self employed, here are some useful hints to help you get started.
The first steps to becoming self employed
If you have an idea about the type of business you’d like to run, and you’re starting to think about the work you would do and how to build up your customers, the first thing you need to do is create your business. There are several different ways of being self employed, and the way you choose will depend on the level of responsibility you want to have, whether you are working with partners or on your own, and what sort of business plan you have.
Sole trader – most one-man-band businesses start out as sole traders. It’s usually the quickest and cheapest way to get up and running because you don’t have to form a company – just register with Her Majesty’s Revenue and Customs (HMRC) as a sole trader, choose a company name and make sure you complete a self-assessment tax form. The downside to being a sole trader is that you are personally liable for losses or debts incurred by your business, so if you’re likely to be taking business risks, or borrowing a significant amount of money, it’s worth considering forming a legal business entity. A sole trader will still need to register for VAT if earning over the threshold and you should check what this is with HMRC when you set up.
Limited company – for business where there might be more than one director, or where you want to legally separate you from your business, it might be worth setting up a limited company. This is done formally through Companies House, and your business will issue shares to the business owners. You’ll need to report statutory business accounts for your limited company, pay corporation tax if it applies, and VAT if appropriate. If directors are paid by the business on a PAYE basis, they must pay tax and National Insurance at source. They should also submit a self-assessment tax form.
Partnerships – partnerships are often used for professional services businesses such as legal or accountancy firms. This is still a form of self-employment; just a different vehicle. The partnership is owned by the partners, who put an agreed amount of money into the business and are equally responsible both for its success and its liabilities. Profits are shared out between partners on an agreed basis. Partners will have to pay tax and National Insurance through the self-assessment process.
Limited liability partnership – this takes the principle of the limited company and applies it to the partnership, so that partners are not liable for the debts that the partnership incurs.
These tend to be the standard vehicles for people who are becoming self employed. In time, your business could grow or change, so a sole trader may choose to set up a limited company if things go well and more security is needed, or a limited company may grow enough that it chooses to become a public company with shares traded on a stock exchange. Directors may also choose to become a private unlimited company where shareholders and directors are liable for debts, or a private company limited by guarantee, where specific backers have a stake in the business and pledge to get the business out of trouble if things go wrong.
Getting vital help and support
Starting your own business can be daunting. You suddenly have to be able to do everything yourself, from running your IT to sorting out your finances. Money can be tight, but it’s still worth investing in someone who can help you get up and running and take away all your admin worries so that you can get on with finding new customers and getting your business off to a good start. Whether you choose standard secretarial support services or dedicated UK based virtual assistant startup service, it can be really useful to have an extra pair of hands as you take the next big steps.
Ready to make a start?
If you’ve been thinking of going self employed for a while, now’s the time to put your plan together, get some help where you need it, and make a start. If you need help with your admin tasks while you start up – or if you’re already working for yourself and need some support, feel free to call us on 0800 994 9016 or use our contact form in the menu above.
My husband became self employed 5 weeks ago, he is working as a handyman. Please advise what he needs to do first, how to register and anything else that needs to be done .
Also would he be classed as a sole trader.
Hi Rachel, thanks for getting in touch. As a first step it might be best for your husband to discuss this with a local accountant as they can advise on the basics that we have outlined in our blog.