There are many things to consider when setting up as self-employed or as a ‘sole trader’ regardless of whether this is your only job or whether it is a job alongside an existing job working for an employer.
Is self-employment right for you?
Being self-employed is a big undertaking and you need to be ready to take ownership of your business, meaning that you are taking responsibility for the company and its potential successes or failures. You need to have a clear business plan and know how your company makes money, how you will be getting clients, what equipment you need, what prices you will be charging and whether you are employing other people. You can register with Gov.uk here.
What is the difference between a sole trader and a limited company?
The main difference between a sole trader (self-employed) and a limited company is that a sole trader is fully owned and controlled by just one person who has personal liability for the business. A limited company, on the other hand, has its ownership split across equal shares.
How do you choose a name for your business?
Before setting up as a sole trader you will need to choose the name you want to trade under. You can trade under your own name or choose a different name for your business. However, there are certain rules that you need to bear in mind. For example, if setting up as a sole trader you will not be able to include “limited” “ltd” “LLP ” or any other variation which falsely implies that the business is a limited company.
You also cannot name your business anything which is the same as an already existing trade mark. Also, you will need to steer clear of any sensitive words, expressions or anything offensive. If you do not want people to trade under your business name you can also register a trade mark. The business name will have to be on any official paperwork.
Tips when looking for finance as someone who is self-employed
The general rule is that you need at least two years of trading accounts to be eligible for a loan as someone who is self-employed (Source: Finger Finance). Some lenders are more flexible and will allow only 6 months of accounts, although you may need to be in profit or generating revenue.
When using collateral such as secured loans or invoice factoring, you may not need to be running for very long and you could be eligible from the moment you set up.
What responsibilities do you have as a sole trader?
To set up as a sole trader, you will need to advise HMRC that you will be paying tax through Self Assessment and make sure to file a tax return annually. It is important that you register for Self Assessment as soon as you decide to go self-employed. You will also need to pay Income Tax on your profits (after you have taken into account your deductions) as well as Class 2 and Class 4 National Insurance. If your turnover is more than £85,000, you also need to register for VAT.
In addition, you will be responsible for keeping all records of your business’s expenditure and sales. This will be extremely important if you are applying for a loan or mortgage in the future.