If you’re fed up of working nine to five, have a hellish commute, or are simply looking to change vocation, you may be considering self-employment.
But taking the leap into self-employment doesn’t come without its challenges. From self-promotion to finding the right workspace, there are a whole host of considerations to be made.
The first - and perhaps most important – step you need to take in setting up your business is to register as a company. To do so, you must decide which company structure is most suitable for your new venture: sole trader or limited company.
As a sole trader, you will be personally responsible for your business’ finances, which means keeping records of all sales and paying the appropriate tax. This also means that you get to keep all company profits after tax, but any losses are held against your personal finances. If you choose to become a sole trader, you need to register with the HMRC within the first three months of starting up.
Alternatively, you can form what’s known as a limited company. This is when your business is legally separated from any personal assets, limiting your own liability. As well as representing a lower risk for you, limited companies benefit from a lower tax rate, allowing you to maximise your profits. To become a limited company, you need to incorporate at Companies House. Here, you will need to decide on a company name, register for company tax and appoint at least one shareholder and director.
Once you have decided which company structure works for you and your business, you will need to make sure that you pay the appropriate amount of tax.
If you register as a sole trader, you will pay tax on business profits, not overall income.
If you choose to register as a limited company, the rules are slightly different. Instead, you are required to pay corporation tax on all profits for the year, with your directors subject to Pay-As-You-Earn tax. Your shareholders must also pay income tax on any dividends or distributions made by the company.
To work out how much tax your business is required to pay, use the Self-Employed Ready Reckoner at gov.uk.
Whether you plan to open a bookshop or become a freelance graphic designer, finding the right workspace can mean the difference between success and failure.
You will need to read up on where your customers are based, where they go, what their buying habits are, nearby transport links, and any potential competitors. All of these factors will determine whether you sign along the dotted line or look elsewhere. For example, opening a coffee shop on a street already saturated with established cafés could negatively impact your business.
If you plan to work from home, you might be surprised to know you can’t simply set up a laptop in your front room and get to work – there are legalities you need to consider, too. For instance, you will need to speak to your landlord or mortgage lender before you accept any payments, as it could violate the terms of your tenancy or mortgage agreement. You will also need to check your buildings and contents insurance as most home insurance policies do not cover business activities. If you are unsure, speak to your insurer or seek advice from a business insurance broker. If you plan to make any major alterations to your home for business purposes, you will also need to gain permission from the local planning office.
For more details on how to run a business from the comfort of your own home, head over to gov.uk.
For certain start-ups, an internet connection and an unwavering work ethic are not enough. Sometimes, you need specialist equipment to compete in the market.
For example, your design business will need the latest graphics software to complete projects to the highest professional standard. Ensure you have all the tools and equipment you require from day one, so you can hit the ground running. You can slowly build up your collection over a couple of months before going into self-employment or save up the money to invest in the equipment all at once.
For equipment purchased for business use, you could claim capital allowance. This allowance is then deducted from your taxable profits at the end of the year. So, if your business turns over a profit of £50,000 and you claim £10,000 in capital allowance, then you will only be taxed on the remaining £40,000.
For more information on capital allowance and claiming back expenses, visit gov.uk.
As you move into self-employment, you need to take responsibility not only over your finances, but also of yourself as a business owner. To give yourself and your clients peace of mind, it is a good idea to protect your business’ most valuable assets.
Many self-employed people, for instance, take out personal accident insurance in case they get ill or injured and cannot work. By choosing a self-employed insurance product, such as professional consultants insurance you can tailor the cover to protect the most critical areas of your business.
To compare insurance for the self-employed, start a quote online with Premierline, or call us today to speak to one of our friendly advisors.
