What to think about when starting a business or becoming self-employed?
The key to working for yourself or starting a successful business is to plan, plan and then plan some more.
Working for yourself can be very rewarding:
Do something that interests you or you’re passionate about.
Choose your own hours.
Work around other commitments like your children.
Have more control over your income.
But there are also some downsides:
Working long hours and weekends.
Dealing with an irregular income.
Having to do your own bookkeeping and tax return.
Limited or no access to employment benefits like paid leave.
HMRC have created an easy to use Interactive guide for anyone looking to start a new business in the UK.
Find out more about setting up your own business and becoming self-employed on Gov.uk.
What help is available if you become self-employed
Fortunately, when it comes to self-employment, there’s plenty of help and advice out there.
Government-backed advice services around the UK will help you with everything from creating a business plan and researching the market, to finding finance and recruiting staff.
So, depending on where you live, they should be your first port of call.
England – Great Business
Wales – Business Wales
Scotland – Business Gateway
Northern Ireland – InvestNI
Different kinds of self-employed businesses
If you’re thinking about starting your own business or becoming self-employed, one of the first things you will need to think about is your business structure.
This is the simplest business structure. You will run your own business as an individual and keep any after-tax profits.
However, your personal and business assets are not considered separate. This means you’re personally responsible for debts associated with the business. You can reduce this problem through insurance, or by choosing one of the other business structures mentioned below.
But, don’t be put off by the idea of being a business. A sole trader is just that – one person, you, working for themselves. You don’t need to be a shop owner. You could be a taxi driver or hairdresser. Becoming a business is just the official term.
To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs (HMRC).
A partnership, as the names suggests, is when you go into business with one or more other people and have shared responsibility for the business.
It’s important you draw up a partnership agreement, so everyone involved knows how the profits are split up.
Business debts are dealt with under what is known as Joint and Several Liability. This means all members of the partnership are responsible for the debts either in full, or individually, depending on how much they can afford to repay.
All partners will need to submit a Self Assessment tax return for their own share of the profits, and a nominated partner will have to submit a partnership Self Assessment for the business.
You can find out more about setting up a partnership on the Gov.uk website.
Private limited company (Ltd)
A private limited company (Ltd), is its own legal entity and is completely separate from the people owning and running it. It will need to be registered (or incorporated) with Companies’ House, must have a suitable name and an address.
The company will have a director (usually the person who started the business) who is legally responsible for running the company, and at least one shareholder (also known as a member).
A Ltd will have to pay corporation tax on any profits, and the after-tax profits are divided up among the shareholders.
The company will need to submit its annual accounts to Companies’ House and a tax return to HMRC. The director will also need to fill in a Self Assessment tax return, but will only pay tax on the money they earned by running the business, not the profits.
While these are the easiest to set-up and understand, there are some other options.
A limited partnership must have at least one general partner and one limited partner. The general partner is responsible for running the business and the partnerships’ debts. The limited partner is only liable for the amount they originally invested in the business.
Limited liability partnerships (LLP)
LLPs are a hybrid of a partnership and a limited company. Like a partnership, it can be set up by two or more people, but like a Ltd, it must be incorporated with Companies’ House, have a suitable name and address and is legally separate from the individuals running it.
It must also have at least two shareholders (or members) and each shareholder pays tax on their share of the profits. Partners liability for the business debts are limited to the amount of money they invested.
Learn more about Limited Liability Partnerships.
Thinking of buying a franchise?
If you’re interested in becoming self-employed or starting your own business, but don’t want to start from scratch, a franchise might be worth considering.
A franchise is where you buy a licence from a business owner to use an existing business idea and brand name. Some well-known franchises include American fast food chains McDonalds, Burger King and KFC, but there are thousands of other franchise opportunities available from global names to local organisations.
The start-up costs can be quite high, but you will be buying into an established brand and the deal should include training and guidance on setting-up, running and growing your franchise.
But be aware of scams. Check that the brand is established and that the franchiser is marketing the brand actively.