Becoming Self Employed

is it right for you?

Becoming self employed as a sole trader is the simplest and quickest way to start a business. There isn't much paperwork to do. There are no registration fees to pay, but you must register with HM Revenue & Customs for tax and National Insurance purposes. Record keeping and accounting is straightforward, and there are the benefits of being your own boss.

Before deciding to become self-employed, it’s a good idea to think through the implications of working for yourself…

Reasons for becoming self employed

becoming self employmed is sometimes the only option if you wish to pursue a specific career path. Journalism, certain legal and medical professions, and the creative and performing arts are all sectors where self employment or freelance work is the typical mode of operation.

There are many reasons for people becoming self employed,such as:

Becoming Self Emploued

• setting up a business
• working as a freelancer
• buying into a franchise
• the desire to prove an idea
• because they relish the challenge
• peer or family pressure
• a feeling that there are no other options
• the desire to sell your skills
• wanting to generate a second income stream

For some people becoming self employed is a lifestyle choice:

The risks of becoming self employed

The more glamorous aspirations attached to becoming self employmed can take years of hard work and commitment to achieve. It is this realisation that provides the biggest shock to most people who decide to work for themselves. This may cast some light on why only one in three business start-ups in the UK succeed in the first three years of business.

So, in the early days you may need to consider the following:

• You do everything yourself and are responsible for the day-to-day running of the business. You will rarely have the resources at your disposal that are available to an established business owner. This may mean doing tasks that you dislike.

• Large salaries or income are rare in the early days. Need for personal financial investment in the business, competition, economic fluctuations and changes in consumer markets may occur.

• You may need to consider having a second job to help provide a guaranteed source of income for day-to-day living costs.

• You need to offer a product or service for which there is a demand. This may depend on projecting a certain image, perfecting a technique or making a product unique.

• You alone are accountable. Taking an unwise decision could reduce your income.

• Expanding too rapidly or, conversely, not being quick to seize a chance might be detrimental to your business.

• Working from home is most effective when you have the space and facilities to do so. If you work out of other premises, you will have to pay rent and other overheads.

• It is impossible to escape some pressures, especially those that come from clients and customers, who will often dictate your working hours.

• By not being employed, you risk losing a range of benefits and a support infrastructure.

• Setbacks may impact on your confidence and profits. Be realistic and learn from your mistakes.

• You will have to make your own tax, pension and health insurance arrangements.

Personal qualities and business skills

Your success in becoming self employed and setting up your own business will depend on both your personal qualities and your business skills. Evaluate yourself and get feedback from colleagues, friends and family, to obtain an honest appraisal of your qualities.

Ask yourself whether you have the right practical skills for the type of business you want to run. By looking at how other businesses operate you can see the variety of skills and knowledge you might need to make your self-employment a success. Do you have these skills already? Can you see any obvious gaps in your skill set? If so, you could:

• Hire someone else to fulfil the skills that you lack, either by taking on an employee or using a freelancer.
• Take a training course to acquire the skills yourself.

Setting up as self-employed

Anyone can set up in business as a sole trader, although for certain types of work you may need a licence or permission from your local authority. Restaurants, childminders, cab drivers and street traders, for example, all need to have a local authority licence. Your qualifications and business premises may be inspected beforehand to ensure you comply with regulations.

If you run a business from home, you may have to pay business rates for the part of your home that you use for your business. This mainly depends on whether the business area of your home is also used for domestic purposes. If you simply work on a computer in a bedroom, for example, you will probably not have to pay business rates.

You may need to get planning permission to set up a business at home. For example, if your business could cause a nuisance to your neighbours, or if you intend to do any building work to adapt your home. If in doubt, contact the planning department of your local authority.

Bear in mind that there may also be restrictions in the deeds of your property or, if you rent, in the rental or lease agreement.

Choosing a name for your business

You can trade under your own name, or use another business name however when choosing a business name, you are also deciding on an identity for your business.

Take time to think about what your business is about. What you provide, your product/service features, the benefits to customers, the personality of your business, what key messages you'll be relaying and the core promises you'll be making to customers.

By describing what your business does, it will make it simple for clients to understand the service you provide. If you decide to use a business name, you must make sure that your business stationery displays your name as well as the trading name of the business for example, Joe Bloggs, trading as Peerless Promotions.

Your trading name should not be the same as, or too similar to, that of a business which already exists. Be careful that it does not contain words that people might find offensive or misleading.
See our guide on how to choose the right name for your business.

Tax and National Insurance issues

If you become self employed, you must register with HM Revenue and Customs. You can register online or call 0845 915 4515.

HM Revenue and Customs will send you the Starting up in Business guide that explains the records you need to keep, how to pay your National Insurance and how your tax will be worked out. Each year, you will be sent a self-assessment tax return to fill in.

See more info on Becoming Self Employed Are You Ready?

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