Self-employment comes in several forms, each with its own benefits and each with its own risks.
There are lots of important considerations to make about the kind of business you wish to run and which kind of self-employment best suits that. Here are a few things you need to consider before taking the leap and becoming your own boss:
Becoming a Sole Trader
A sole trader is often the simplest form of self-employment where you are the sole owner of your business and entirely responsible for its success. A sole trader doesn’t have to register with Companies House or have a director. This simpler form of self-employment makes running a business easier as long as you keep good financial records; however, you do not receive the tax benefits associated with more complex forms of business structure. It is also important to make accurate financial projections for your first year of business – if you think you will turnover £85,000 or more a year then make sure you register for a VAT number and prepare to pay the appropriate amount of VAT. Being a sole trader also means you are entirely responsible for the business with no limited liability, meaning should anything go wrong, all your finances and assets are at risk rather than just those assigned to the business.
Registering as a Public Limited Company
To become a public limited company, a business must be registered with Companies House and have at least one person appointed as the director. If you wish to be a director, the rules stipulate that you must be 16 or over, not banned from being director of a company and not have an undischarged bankruptcy. Choosing to start a public limited company allows you to sell shares to investors to raise funds which is a great way to raise capital if you wish to grow and expand quickly. A huge benefit of choosing to start a public limited company is that your personal assets are separate from the assets assigned to the business, protecting your personal finances and credit history should your business hit financial difficulties. The disadvantages of this type of structure
You Need to be Fastidious with your Accounts
There is a lot to think about and consider when working for yourself, but no matter what, you need to make sure you dedicate time to keeping track of all your income and outgoings. If you struggle with accounts or are not sure what you are doing and have the funds to do so, it can be incredibly useful to appoint someone to oversee it for you. Setting aside money throughout the tax year to pay for national insurance and income tax is advisable to prevent the possibility of being landed with a large tax bill you cannot afford to pay.
It can be Harder to Secure a Personal Loan
When trying to secure a personal loan or mortgage you will need to be able to prove your income. When you are self-employed, the rules around securing a loan are a little stricter than if you were employed. Most lenders will look for you to have a strong credit history, a track record of regular work, a registered accountant, a solid deposit and at least two years’ accounts.
as it grows and you wish to hire staff and deal with a growing list of customers/clients, it will become increasingly important that you invest in insurance coverage
Insurance
You might get away with not considering insurance at first when you start your business, but as it grows and you wish to hire staff and deal with a growing list of customers/clients, it will become increasingly important that you invest in insurance coverage. Public liability insurance isn’t required by law, but it will cover your business if it
Hiring Staff
Does your business require staff? If it does, make sure you have carried out proper financial projections to ensure you can afford everything that this involves. Hiring people is a huge responsibility with many legal requirements including paying the minimum wage, paying National Insurance and contributing to a pension. You also need to consider the cost and time the recruitment process will take up and how this might affect your fledgeling business.
Work Environment
Working from home sounds great at first, but it can become very isolating and requires a strong work ethic. The benefits of working from home are the fact you don’t have a commute, you don’t have to pay for the overheads that come with an office/retail space and you can include your mortgage payments and utility bills as a tax write off. If you need to rent premises – if you are opening a shop for example – always do your research into the area and ensure you can afford the monthly outgoings.