With the economic situation only improving extremely slowly, and many companies continuing to go out of business, it is natural for many people to consider working for themselves. Self-employment can seem the right way to go for those who want to control their own working hours and do something that they enjoy rather than going out to work for a wage just to pay the bills. There are, however, many things that need to be taken into consideration when becoming self-employed and it does require some planning.
When starting out as a self-employed individual it is important to think about the type of business it is going to be in law. There are several different legal structures for a business and these include sole trader, limited liability partnership, a partnership or a limited company. Most people when starting out will opt for sole trader, but there are some advantages to considering the other options and it is a good idea to get some professional and legal advice on the matter.
It is important to notify HMRC when self-employment is in place and there are deadlines for this, although the sooner it can be done the better. Tax will need to be paid before the set dates otherwise there are penalties to pay, and this can be expensive for a business still in the early stages of trading. A sole trader will need to pay income tax and National Insurance but there are business taxes for other types of company and – depending upon turnover – it may also be necessary to register for VAT. An accountant will be able to advise if the new business will need to consider issues such as ir35.
There are some other important points to consider when starting a new business. Is the business manageable for one person or will staff need to be employed? Is there a good market for the product or service that is being offered? It can be very difficult when first starting out to get the right balance between marketing, administration and actual productive work. It is a good idea to get some advice when starting up on your own and there are plenty of places that will offer good advice, such as the Federation of Small Businesses (FSB).
The use of an umbrella company can also help to take away some of the strain when first starting an enterprise. When using an umbrella company a freelancer is not officially self-employed but is still able to decide what type of work they do and when. The umbrella company will deal with all the administrative aspects of running the business and the freelancer pays tax and National Insurance on a PAYE basis. This type of service is ideal for those who are just starting a business as it can help them make the transition from being a company employee to having their own company. It is then possible to concentrate on the important things, such as finding clients and marketing, without having to take time to deal with tax returns and issuing invoices to clients.