So you’ve decided to set up as self-employed – firstly, congratulations! Starting your self-employment journey is an extremely exciting time, but it is also essential to do your research and to make sure that your business is set up correctly. Here are a few things that you may want to consider.
Sole trader or limited company?
Every business needs a legal structure, and most in the UK are either set up as a sole trader or a limited company. Setting up as a sole trader is the simplest and easiest business structure, which is why many individuals opt for this route during the early days of their business. Setting up as a Limited Company, on the other hand, is a little bit more complicated, but it is better for businesses that intend to scale. You can read more about the pros and cons of both here. Although it helps to get this part right straight away, nothing is stopping you from changing your business structure from Sole Trader to Limited Company at a later date.
Do you need insurance?
Depending on the nature of your business and your line of work, then you may need to take out some form of business insurance. Some of the main types of business insurance are public liability insurance, employers liability insurance, product liability insurance, business interruption insurance, and trade insurance. Each of these categories has a series of subcategories, as explained here for trade insurance -. https://www.rhinotradeinsurance.com/trades-covered/building-contractors. When it comes to business insurance, it can seem like an unnecessary expense, but in the event that something does go wrong, then it is an important safety net to have.
How will you keep your books?
When you are self-employed, you must keep a record of all your income and expenses so that you can submit a tax return and pay the correct amount of tax. Depending on the size of your business, how complex your books are and whether you have the time, you may want to start by keeping your books yourself, or alternatively, you may want to use software such as QuickBooks or hire the services of a bookkeeper or accountant. Whatever you choose, you need to keep evidence of your invoices and expenses for at least two years after you submit each tax return, and with tax now digital, it is best to have all of this saved digitally online.
Do you have an emergency fund?
Lastly, leaving the safety of a nine-to-five behind and becoming self-employed means that you are no longer eligible for certain benefits such as matched pensions, Statutory Sick Pay, and you are also not automatically eligible for Maternity Cover. Therefore, you must start building an emergency fund as soon as possible to cover your expenses if you are unable to work. If you do plan on getting pregnant and are a sole trader, then you will need to pay Class 2 National Insurance for at least 13 weeks prior to the birth of your baby in order to be eligible.
These are just four things that you need to consider during the early days of your business – so have fun but also remember to do your research.