A Guide to Going Self Employed in The UK
One significant benefit of being a resident in the UK is that it's easy to say you are going self-employed and work for yourself. And in reality, that's all there is to it, at the planning stage.
The principal element you need to be aware of is that you must notify HMRC within three months of you earning non-PAYE income otherwise they will fine you and continue to add penalties you until you do.
Other than notifying the tax authorities, you're free to set up your business in any way you desire. You can choose the industry you want to work in, the services to sell, the price to charge, and the people you work with as customers or staff.
Most people now complete self-assessment tax returns, so you should be no stranger to the annual event. You'll just need to fill in a few more boxes on the form.
You'll need to declare any income and expenses each year on your personal tax return. But other than that you can run your business as you see fit.
Why Do People Become Sole Traders?
The main reason people set up their businesses is that they want to escape the 9-5 rat race and be their own boss. Unfortunately, in the current climate, many people see no other option than to run their own business but this is an excellent opportunity for many budding entrepreneurs.
Below are the benefits of being in business on your own.
- You're totally in charge of what you do.
- You decide the hours you want to work.
- There's usually less tax to pay on your income.
- You can work on something you enjoy.
- You'll have a sense of achievement as your business grows.
- You decide on who you work with and for.
Disadvantages and Risks of Going Self-Employed
You may decide that the advantages outway the negatives of going it alone. Below are some of the risks involved:
- If you can't work for any reason, nothing gets done.
- You'll have to get additional insurance to cover against your actions.
- If you employ staff, you'll need to undertake PAYE calculations and have a pension scheme.
- There's more paperwork involved in completing your tax returns.
- On your own, you have to cover off many activities such as marketing, operations, finance, and IT.
Setting Yourself Up as Self Employed
Many people set themselves up as sole traders, but there may be tax advantages of operating under a limited company scenario. You can set up a limited company at companies house direct which is a pain-free method of getting a company online.
Business Banking Options
Once you have your company formed, you'll need to separate your personal and business income and expenditure by opening a business bank account. You don't need to be with the traditional banks and some of the new entrants offer free banking for life. You can get a bank account using the various free business banking accounts which you can apply online and therefore pay no fees for traditional banking expenditure.
Making Your Income Work Harder For You
If you believe that you'll have savings or income in your business, then it's wise to check out the different business savings accounts available. Otherwise most banks only pay 0.01% interest on credit balances in current accounts. You can get good interest on savings with the best business savings accounts which are easy to open and ensure you at least receive some credit for your hard work.
Finding The Right Insurance Products
One thing to keep in mind is the various insurances you may require if you deal with members of the public, visit client premises or eventually employ staff. Get insured with either or both professional indemnity insurance for the services you offer and if you employ staff check out public liability insurance. In the unlikely event you're taken to court for mistakes made in your business, your insurance will then cover you for all costs.
If you're thinking of becoming a self-employed courier you'll need specialist insurance to cover your vehicle and the contents you carry. That's why we have a specific section on courier van insurance cover and because many people start up as couriers.
Other Things to Consider
So long as you have a sustainable business plan and good marketing skills there is no reason why you should not be successful. There are plenty of areas of online help that provide free advice to help with you going self-employed with friends and family often a great help and source of motivation.
Many people start their new business while still employed on PAYE by working on business and marketing plans in the evenings and weekends. They may also take on some projects to get the initial business idea running and a small steady stream of customers on their books. By moonlighting carefully, you'll also see if your new venture is successful with a handful of clients. But even at this early stage of development, you still need to cover off all the above issues, especially with HMRC.
Going it alone is hard work, but the long-term rewards are worth it.