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How to start a business (self-employed)

  • 4 min read
  • Last updated 18 Jan 2024

Decided you want to work for yourself but now you’re wondering how to start a business? Here are a few things you should consider when joining the self-employed club.

Have you done your research before setting up your business?

Before diving into anything, it’s always a good idea to start with research. Extensive research, too (starting a business is no game😅).

A good start is looking into your target market (who your customers will be) and competitors (who is already selling the same product/service).

Is a limited company or sole trader business best for you?

So you’ve done your research and you’re 100% certain about your new business venture. But now you’re torn between setting up a limited company or a sole trader business. Hmmm. 🤔

Sounds like you need a quick rundown of the two:

Sole trader businesses

To keep it short and sweet, a sole trader is responsible for owning and the day-to-day management of their business.

As a sole trader, you and your business are one. So you make all the decisions, keep all the remaining profits, and take full responsibility if anything goes wrong.

To set up as a sole trader, you’ll have to register for Self Assessment.

Limited company

The other option is setting up a limited company. This will allow you and your business to be independent of one another. 

In this case, your personal finances and business finances are separate, so you won’t be personally liable for any business debts. 

To set up a limited company, you’ll have to register with Companies House. Every year, you’ll have to report details of the companies performance and activity to Company House.

For a full sole trader vs limited company breakdown, read our guide here.

Do you know what taxes self-employed people have to pay?

Again, this depends on whether you choose to set up as a sole trader or a limited company:

👉 As a sole trader, you’ll pay income tax and Class 2 (being scrapped from 6 April 2024), and Class 4 National Insurance on your profits. You’ll pay this through an annual tax return. But only if you earn over £1,000 in profit each year. If not, you won’t need to report this income. This is called the Trading Allowance.

👉 When you register your limited company, it’ll automatically be registered for corporation tax. There are two rates: 19% if your company makes over £50,000 a year, and 25% if it makes more.

Whether you choose to set up as a sole trader business or a limited company, if profits are over £85,000 a year, you must register the company for VAT.

Do you know the advantages of working for yourself?

There are many advantages of being self-employed (not having to explain why you were 20 seconds late to your boss being the first, ofc). 

If you’re self-employed, you may get:

More flexibility

If you have any other commitments, self-employment offers much more flexibility than a 9-5. You are in charge of your own schedule – sick leave and holidays included. 

Tax benefits

Although the tax rates for the self-employed and employees are the same, self-employed people can take advantage of what is known as expenses

You can deduct expenses that you gain from running your business to lower your tax bill. 

And what about the disadvantages?

Behind a bunch of pros usually follows a few cons. Self-employed people may find that:

Income isn’t guaranteed

When working for yourself, your income is usually inconsistent, unlike being an employee. 

One month you could pull in three months worth of wages, but you could also experience slower periods where you bring in much less. 

You’re in charge of your own taxes

Employees are taxed automatically through a system called PAYE. The tax is deducted before they receive their wages, which makes it pretty easy for them to not worry too much about tax. 

Self-employed people have to estimate, file and pay their taxes annually to HMRC through a Self Assessment tax return. 

👉 Luckily, we have a tax return checklist if you’re self-employed to help you remember everything you need to file your taxes correctly. 🙌

Need a hand understanding tax?

Get 1:1 tax advice from our accredited accountants. And if you need, they can also sort your tax return and send it to HMRC on your behalf. 

Find out more about our services here.

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