Going Self Employed in the UK: A Complete Guide
Starting your own business and becoming self-employed is an exciting adventure. It offers freedom from traditional employment, the chance to work the way you want, and a great deal of independence. But self-employment is a big step to take. Self-employed people have far more responsibility than they would in regular employment, and it can be stressful to navigate.
The good news is that over 4.3 million people in the UK are self-employed. That means that if you’re thinking about becoming self-employed, you’re not alone. To help you get started on your self-employed journey, we’ve put together a quick and complete guide to going self-employed in the UK.
Stage 1: Preparing to be Self-Employed
Millions of people in the UK choose to become self-employed as an alternative to traditional employment. Some even become self-employed by accident. It’s not difficult to see why people choose to enjoy self-employed status; just a few of the benefits include:
- Flexible hours — You control the times you work and the amount of time you have off. This means you can nail your work/life balance.
- No fixed location — Depending on the business you’re starting, you can pretty much work from wherever you like.
- More income — A manager doesn’t determine your income; you decide it. This means you can make more money.
But while there are undoubtedly benefits to becoming self-employed, you shouldn’t jump into it blind. You need to develop an action plan for your journey to know what you need to know and when to do it.
Are You Ready to Be Self Employed?
Before confusing yourself with a self-assessment tax return, annual turnover and business structures, you need to ask yourself some serious questions and answer them honestly.
- Are you prepared for the insecurity that goes with being self-employed? — Monthly payments aren’t a guarantee when you’re self-employed and not an employee. If you don’t source and complete work, you don’t get paid. You’re likely to have lean months — especially at the beginning — which can be very stressful.
- How well do you cope working alone? — Being self-employed means that you’ll be working alone a lot of the time. While you might collaborate with clients, you won’t have people to bounce ideas off (except family and friends).
- Are you ready to give up paid holiday, sick leave and employment benefits? — Unfortunately, if you’re self-employed, you don’t get paid if you’re not feeling well and can’t work. As your own boss, you lose out on the benefits of being employed. This means that both holiday and time off sick can cost you money.
- Ready to do everything to run a business and work nights and weekends? — It’s unlikely that in employment, you’ll be expected to do your job, complete all admin for the business and ensure that the company is well marketed. When you run your own business, that’s all your responsibility and will often occur outside of office hours.
If you can answer all these questions positively, then you’re probably ready to start your self-employed journey. Don’t worry if you’re not entirely sure about them all; keep reading, and we’ll address many of your concerns. Being self-employed is a learning experience, and you won’t get everything right straight away. But if you approach everything with the right attitude and do your due diligence, you’re off to a good start.
Going Full-time Self-Employed or Creating a Side Hustle?
While going full-time self-employed is a giant leap, there are ways to give yourself a safety net. If you’ve got a business idea that you’re excited to get off the ground, you can start it as a side project until it takes off.
In fact, 40% of UK workers have a side project to supplement their daily job income or start their entrepreneurial journey. This is a great option to keep the safety net and benefits from employment while working out the kinks of self-employment.
If this is the route for you, you’ll still need to register as self-employed and get up to speed with self-assessment tax returns. It’s also a good idea to look into your employer’s policy and your contract; you can quickly get into hot water if you start a side project that breaches your contract.
Step 2: Planning Your Self-Employed Journey
Once you’ve decided to go self-employed, it can be tempting to charge full-steam ahead. While enthusiasm is undoubtedly a good thing, try to slow down and get a plan put in place before getting going. There’s a lot you’ll need to think about before you can start making your business a success.
Work out Your Financing
Often, the startup costs for going self-employed and starting your own business are relatively small. For many people, they’ll need little more than a laptop which they may already have. However, you’ll need to think about other expenses and make a note of them; they often include:
- Marketing costs
- Website costs
- Equipment costs
- Professional fees
- Insurance
- Stock.
If your business requires anything specific, you’ll need to work out how you will afford it. If you know anyone self-employed in the same industry, it’s worth asking them about their expenses and any unexpected costs they didn’t account for. It’s also good to check to see if you’re eligible for any government startup grants.
Find Ways to Source Work
One of the most challenging elements of running your own business is sourcing work. With no fixed income, you need to be sure that you have ways to find work so that your business can stay afloat. Ways of finding work vary dramatically from industry to industry, but some good sources of work include:
- Online marketplaces
- Recruitment platforms
- Freelance job sites
- Friends and family.
Securing regular and reliable clients is incredibly important when you’re self-employed, as they can be crucial in the leaner months.
Put Together a Business Plan
Once you’ve worked out whether your business is viable, affordable and there’s enough market demand to be successful, you can start putting together a business plan. If you haven’t already got a business name, now’s the time to think of one. Try to keep it short and simple and show the essence of your business in a few words. If you’ve already got a business name in mind, it’s worth checking if the name is available before continuing.
With the perfect name, you can now proceed with your business plan. You create a business plan for two reasons:
- To set objectives, develop ideas and plan for the future
- To show to banks and potential investors as proof of your business’s viability.
Your business plan will need to include:
- Overall aims and targets
- Target markets
- Products and services
- Financial projects
- Marketing plan
- Forecasts.
For a walkthrough of putting your business plan together, read our complete guide.
Stage 3: Register as Self-Employed
At this stage, you’ll have your business idea, name and plan all worked out. You’re almost ready to get your business going. Before you start trading, you’ll need to register your business for tax purposes with Companies House and HM Revenue and Customs. But before you begin the registration process, you’ll need to decide on your business structure.
Sole Trader or Limited Company?
Most people will register as self-employed as either a sole trader or a limited company. While other options are available like partnerships, social enterprises and unincorporated associations, becoming a sole trader or a limited company are the most popular choices.
Sole traders are the UK’s most popular type of business, and that’s due to it being the most simplistic. If you become a sole trader, you’ll be the company’s sole owner, and be self-employed. While you’re able to keep all your profits after tax, you’re responsible for your losses. You also need to follow strict rules on the naming of your business, like not including the word “limited”.
If you decide to register as a limited company, your business will be a legally separate entity to yourself. This means that the business’s finances are entirely separate from your personal ones. While you can have shareholders, you can be the sole shareholder and director of the company. You will need to pay Corporation Tax rather than income tax on your profits, and you will divide the profits among shareholders.
Many self-employed people choose to start as a sole trader and later register as a limited company when their businesses are running successfully, making more sense fiscally.
Register with HMRC and Companies House
After deciding on the structure of your business, you’ll need to register your business. Both sole traders and limited companies need to register with Companies House.
Sole Trader Registration
If you choose to become a sole trader, you’ll need to register with HMRC for tax purposes. You’ll register for self-assessment tax and will need to file a tax return every year before the January deadline.
Alongside running your business, you’ll need to keep detailed records of your business’s income and outgoings. You’ll also need to ensure you pay:
- Income tax
- National insurance
- VAT (if applicable).
Limited Company Registration
Registering a limited company is a little more complex than it is for a sole trader. Alongside registering with Companies House, you’ll also need to:
- Register an official office address — While you can use your home address, many self-employed people use a virtual office address to protect their privacy.
- Pick a SIC Code — This stands for “Standard Industrial Classification of Economic Activities” and determines what your business does.
- Register for Corporation Tax through HMRC.
- Register for VAT if your turnover is higher than the VAT threshold.
Ready to Go Self-Employed?
Once your registration with Companies House and HMRC is complete, then you are good to go. You can get your new business started and start making money. While you’ll have everything in place to get going, you may also want to consider:
- Business insurance
- Business bank account
- Hiring an accountant
- Self-employed pensions.
While you’re not legally obligated to have any of these, it’s wise to look into them as they can help you to save money and avoid fines.
Ready to become self-employed? Mint Formations can help you register as a sole trader or a limited company today for as little as £54.99 and take all of the hassle out of the process. Get in touch today if you have any questions about registering your business.
