Becoming self-employed 

Phillip Venn, commercial director of accountancy firm Boox, discusses the first decisions that need to be taken when someone goes self-employed. 

 Becoming self-employed 

Phillip Venn, commercial director of accountancy firm Boox, discusses the first decisions that need to be taken when someone goes self-employed. 

Phillip Venn, commercial director of accountancy firm Boox, discusses the first decisions that need to be taken when someone goes self-employed.

You’ve potentially just made a significant life-changing decision and joined a 4.1 million strong workforce in the UK. Whether it’s by choice, or due to other circumstances such as losing your job, moving into self-employment has fantastic rewards including giving you a greater level of flexibility with your working week, and potentially increasing the amount of money you take home.

It does also bring with it additional responsibilities, depending on which route you take, but here’s a step by step guide to getting your self-employed career up and running.

Find work

Finding work as a self-employed contractor or consultant calls for the same skills as when you’ve looked for permanent or temporary work in the past. Firstly, ensure your CV or work portfolio is correctly formatted and up-to-date. This is your foot in the door, and your chance to make an immediate impression with the recruiter and potentially your end client.

You should then contact recruitment agencies to highlight your skills and availability. Use both local and larger national agencies that are specific to the sector you are looking for work in. Finally, maintain an effective network of business or industry contacts – utilise sites such as LinkedIn to grow your professional networks. You should also consider setting up your own website or blog if relevant to your industry sector.

Decide what sort of business type is right for you

To put it simply – decide on how you want to get paid, and how much responsibility you want to undertake being self-employed. Depending on the sort of work you’re conducting, or the type of contract you’re fulfilling, you’ll have three main options. These are; setting up your own limited company, using an umbrella payroll company, or go down the sole trader route and conduct your own accounting.

Each has its own advantages and disadvantages, and your decision will be impacted by the type of work, and contract you end up taking.

Limited company

Setting up your own limited company is considered the most efficient way for you to maximise your take home pay. You can also have a bit of fun deciding on what you want to call your business, although obviously it shouldn’t be offensive. Ideally, it should give your customers a good idea of what you offer without sounding too similar to other registered companies.

At the same time, it’s also advisable to make sure you can register the same internet domain. When you set up a limited company you’ll need to register it with HMRC for corporation tax and PAYE. The business will also need to be registered with Companies House which will require you to send them your annual accounts, which will be publicly available for inspection. As the director of the business, you will be responsible for fulfilling these obligations as well as any other general business or sector specific legislation.

Umbrella company

You have very few responsibilities when you work through an umbrella company. The umbrella acts as your employer by contracting out your services to your client, raising invoices and collecting payment – all you do is turn up, do the work you’re contracted to do, and wait to get paid.

You can also claim for various expenses (usually travel, accommodation and subsistence) which are deducted from your gross income to reduce the amount of tax you pay. Once payment is collected from the client, the umbrella company then pays you your salary, either weekly or monthly, through the PAYE system. As well as deducting tax and national insurance, the umbrella company will deduct a margin (their fee – which will vary depending on your earnings).

Sole trader

As a sole trader, you have very few of the administrative responsibilities that come with a limited company, however you are required to keep records of all your income and expenditure and complete an annual tax return. You are personally responsible for paying your tax and national insurance.

There is no limit to your liabilities as a sole trader. You will be personally responsible for any business debts and bills you incur. This could put your personal assets, including your home, if you own it, at risk. As with the limited company route, you will also be required to comply with all general business and sector specific regulations.

From a tax point of view, you will be better off as a sole trader than on PAYE, though you won’t have access to the tax benefits available to limited companies.

Get a good accountant!

It’s not overly difficult or complicated to set up your own business. It is however, a legal process which could also involve the need for you to have the responsibility of having a business bank account. Your decision needs careful thought on which route you should take. It is therefore wise to get advice either from your colleagues / peers, or straight from an accountant.

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