If you are thinking of setting up your own business, you are not alone. The Guardian reports that ‘around one in seven UK workers are self-employed’ and there has been an increase in the number of people setting up their own businesses over the last couple of years.
There are many advantages to being your own boss including flexible working hours, not having to commute into an office and also being able to concentrate on work that you enjoy. However, with no regular salary there are also plenty of pitfalls.
Our guide looks at the basic steps you should take if you are thinking of becoming
Make sure you have some financial backing
It can often take some time to start generating income as a self employed person. Even if you have clients and customers you can work with immediately, it may take several weeks or months for invoices to start being paid.
So, it’s vital that you have some financial backing in place before you start your business. The Professional Contractors Group (PCG), a cross-sector business association for contractors and freelancers, suggests that you should have six months’ living expenses in the bank at the outset.
Having some cash behind you is vital as once you’re self employed you will also give up many employment rights such as sick pay, maternity leave and holiday pay.
Looking after your financial and tax affairs
Once you have set up your business you will have to register with HM Revenue and Customs straight away, otherwise you may face a penalty. You will be registered for Self Assessment and you will typically have to begin paying Class 2 National Insurance Contributions by direct debit.
It is often useful to hire an accountant to look after your business affairs. Indeed, Clive Lewis from the Institute of Chartered Accountants believes that you should find an accountant before you even start working for yourself. They will help you with the registration process but also advice you on how to keep the appropriate business records.
Mr Lewis told the Guardian: “Accountants that work with those in a similar situation to yourself see lots of start-ups, so they have a good nose for what works. [And] very few people realise the administrative effort that’s required. And the better run the business, the more the administrative burden.”
It’s also vitally important that you set aside part of your earnings in order to pay your tax bill at the end of the year. Many self employed people typically put away around 25 per cent of their earnings in order to meet their tax liability at the end of the tax year.