A Guide To Going Self-Employed For The First Time

Jane Wardle

Written by Jane Wardle on January 14, 2019

Updated January 14, 2019

man going self employed for first time

According to the Office for National Statistics, there are over 4.8 million self-employed people working it the UK, a figure that has been increasing steadily since 2001. Initially, this increase was in response to the economic downturn. However, despite unemployment now being at an all-time low, self-employment is still proving a popular choice for many people.

The government doesn’t have one single definition of self-employment, and there’s a chance you could be self-employed without realising it – if you provide the main equipment to do your work rather than it being provided by an employer for example. If you aren’t sure if you class as self-employed, visit the government’s website for more information.

Things to consider before becoming self-employed

Working for yourself has a lot of benefits, not least the flexibility of deciding when and where you work. But there are downside’s too, meaning it might not be for everyone. Before you decide to become self-employed, you should consider:

  • What your business idea is and whether it’s viable, e.g. will you be able to find clients or customers?
  • How will you fund your business, e.g. do you have savings, or will you need to apply for a grant or loan?
  • Where will you work from, an office or your home? Where you’re based impacts the taxes you pay.
  • Do you have the skills to manage your own business, e.g. are you comfortable managing a company’s cash flow, keeping records or completing tax returns?
  • Do you have the skills to manage a staff team, e.g. do you understand your legal responsibilities?
  • Are you setting up a limited company or as a sole trader?

When deciding to work for yourself, you need to think about you’re suited to self-employment. Are you comfortable working on your own, for example, and how will you cope during downtimes – are you the type of person who worries about such things or do you see it as a challenge, a time to network and find more clients?

Becoming a limited company versus a sole trader

When you become self-employed, you can set up as a sole trader or a limited company;

Sole trader

A sole trader is the sole owner of their business. Setting up as a sole trader is quick and easy and requires very little paperwork, making it appealing to many newly self-employed people. However, the downside to this is that you have unlimited liability, meaning if your business gets into debt, you are getting into debt, and your personal assets are at risk. It can also be harder to raise finance as lenders prefer to loan money to limited companies.

Many newly self-employed people start as sole traders because of how easy it is. Plus, there is less of a commitment. However, once you reach a certain income level, you might find yourself at a disadvantage from a tax standpoint. If this happens, you might want to consider setting up as a limited company.

Limited Company

As a limited company, you’ll need to register with Companies House. This can take time as you’ll need to create official documentation and legally binding agreements for shareholders and directors. This documentation, however, has the benefit of protecting your personal assets if something happens because limited companies also have limited liability.

Limited companies pay corporation tax (as opposed to income tax, which sole traders pay), and are eligible for a wider range of tax allowances and deductions, which can be claimed against any profits.

Setting up as a sole trader

If you decide to set up as a sole trader, you will need to:

  • 1. Register with HMRC, letting them know that you will be paying your taxes and national insurance through self-assessment.
  • 2. Set up a business bank account, allowing you to keep your business income and expenditure separate from any personal spending.
  • 3. Set up a process for recording income and expenditure, making it much easier to complete your end of year tax return.
  • 4. Confirm if you can work from home by checking your mortgage or tenancy agreement as not all lenders and landlords allow you to operate a business from home.
  • 5. Take out insurance to protect you against any legal claims. The type of insurance you’ll need varies but can include professional indemnity insurance, public liability, employer’s liability and sole trader insurance.

Don’t forget about your pension or think it’s an unnecessary expense when you’re first starting out. While you won’t be able to claim employer contributions to your pension, you can get government contributions.

Setting up a limited company

To set up a limited company you’ll need:

  • 1. A company name, one that isn’t the same/similar to another company, doesn’t use sensitive/offensive words or suggest it represents a government agency or local authority.
  • 2. A physical address in the same country as your company is registered.
  • 3. At least one Director over 16 years who isn’t disqualified from running a limited company.
  • 4. At least one shareholder who owns the company’s capital; you can be this shareholder.
  • 5. A statement of capital listing the number and types shares your company has and total share capital.
  • 6. A memorandum of association, a legal statement signed by all initial stakeholders and saying they intend to form a company.
  • 7. Articles of association which outline the rules directors have to follow to run the company.

Once these are in place, you must register your company with Companies House, either online or using form IN01, and for corporation tax. Registration for corporation tax has to be done within three months of your commencing operations.

Registering with Companies House online is cheaper (at £15 as opposed to £40) and quicker (at 24 hours versus 8 to 10 days) than registering using IN01; if you want your company to be registered on the same day, there is an additional £100 fee.

Related: Loans for self-employed people & Mortgages for self-employed people

Comments are closed.

Related guides

What To Do When Your Business Is Insolvent

Running a business is incredibly difficult, and sometimes, the worst happens. Sometimes, you can’t afford to pay your bills, and you find yourself in financial disarray. A company goes into what we call insolvency when they can no longer afford to pay their debts – […]

How To Stay Motivated When Self-Employed

Being self-employed is looked upon as the dream. Working from home if you so wish, being your own boss, managing your own hours and doing a job that you love. In writing, it does indeed seem that way. However, in reality, self-employment and staying motivated […]

How To Start A New Business On A Budget

Taking the plunge and deciding to work for yourself can be a challenge and it takes a lot of personal strength and self-awareness to make that move. Doing so when you have minimal money to put down as capital is an even bolder move, but […]

How To Deal With Business Cash Flow Problems

While all business owners, small or otherwise, dream of affluence and positive business transactions, sometimes life gets in the way and business starts to suffer, leading to cash flow issues beyond your control. If this is the case, then accessing and ultimately addressing the situation […]


Lending Expert is a credit broker and comparison website, we're not a lender.

We bring together the very best financial providers and products from across the market place.

Warning: Late repayment can cause you serious money problems.
For help, go to moneyadviceservice.org.uk