In 2021, the self-employed workforce contributed around £303 billion to the national economy. There are over four million self-employed people in the UK. So how can you get in on it? How do you become self-employed in the UK? Whether it is registering as a sole trader or starting up your own limited company, here are all our tips on how to go self-employed.
Should you go self-employed?
Firstly, you need to decide whether is it right for you. Whilst you will get to be your own boss and have more flexibility in your work, you need to make sure you are ready for the responsibility that comes with running a business on your own. Do you have the funding? Do you think you can manage your cash flow and keep thorough enough records? Are you prepared to lose your employee benefits?
How to pay National Insurance when self-employed
Most self-employed people need to pay Class 2 and 4 National Insurance contributions which you will pay as part of the Self-Assessment process. You need to complete your Self-Assessment by 31st January every year.
How to go self-employed
When you go self-employed you are essentially setting up your own business, so you need to consider what business structure you want to go for. A limited company will need to be registered with Companies House and you will have to draw up a memorandum of association and pay corporation tax. A sole trader however will need to register as self-employed with the HMRC and pay tax through Self-Assessment.
Set up a business bank account – you do not need to set up a business account, but it is a good idea to keep your business and personal transactions separated. Compare charges and transaction fees that different banks charge to find the one that is best suited to you.
Establish a process for recording profits and expenses – you will need extensive records when it comes to completing your HMRC tax return or if you are ever audited. These records need to be clear, accurate, and up-to-date.
Sort out insurance – professional indemnity insurance and public liability insurance are the two main types of business insurance that you need to consider but there are many more that might want to look at too. Do plenty of research and make sure you are fully covered.
Think about your pension – you will not have a workplace pension anymore so you will probably want to set up a private pension, so you are still putting money aside for your retirement.
Check tenancy or mortgage agreements – if you are working from home, you should check your tenancy or mortgage agreement to make sure you are not contravening any terms and you may be required to inform your mortgage lender or landlord.
You may be able to claim certain benefits if you are self-employed and not earning much money. You could be eligible for income support or working tax credit. Check the government website for more details on this.