According to 2020 statistics, there are around 5 million people currently self-employed in the UK contributing to a total of £305 billion to the national economy.
With the changing job market, more and more people are looking to become self-employed. We take some expert tips from Lending Expert on what to consider when going self-employed for the first time.
What business are you setting up?
Before taking the jump to become unemployed, it is important to have a clear business plan in mind. You need to know before you begin whether the business plan is viable and sustainable. Part of this is knowing where your clients or customers will be coming from, how much you will be charging them and how much profit you will be making per transaction.
How are you funding your business?
In order to set up a business, you will need to invest. That may come from personal savings or in the form of a grant or loan. If you are accepting a loan, you will need to ensure that you have a clear repayment plan in place. Options including using your local bank, specialist business loans, government grants or even borrowing from family or friends. Read our guide here on self employed business funding.
Where will you work from?
Your workplace, whether you choose to work from an office or your home, will affect the taxes you will pay so it is important to bear in mind before setting up the business.
Do you have the skills to manage your own business?
The skills behind being self-employed are more than just having a viable business plan and a passion for what you do. You will also need to be comfortable managing company cash flow, keeping financial records and completing tax returns.
Depending on the size of your team, you may also need the ability to manage a staff team and understand the legal implications of employing other people.
Know your legal responsibilities
Before setting up as self-employed, it is important to check on the government website the various definitions that they have. It is possible that you may already be classed as self-employed without knowing. See more about your legal responsibilities.
How are you setting up your business?
When deciding to be self-employed, you also need to make the decision of whether you want to set up as a limited company or as a sole trader.
If you are a sole trader, you are the sole owner of your business.
One of the key advantages of being a sole trader is how easy it is to set up. It is relatively quick to set up as a sole trader and requires minimal paperwork. There is also less commitment involved.
Being a sole trader means having unlimited liability. This means that if your business goes into debt, your personal finances and assets are at risk. For this reason, it is also often harder to secure funding as lenders prefer to lend to limited companies.
To become a limited company, you first need to register with Companies House.
The official documentation of a limited company can protect your personal assets if something happens as there is limited liability. It acts as a buffer between you and your personal finances and assets. Limited companies pay corporation tax meaning that they are eligible for a wide range of tax allowances and deductions.
Setting up as a limited company can be time-consuming as it involves the creation of official documentation. It is also more of a commitment as it includes legally binding agreements for shareholders and directors.