If you become self-employed, it’s important to know what you need to do to run your own business. Check that you have the right skills and support to succeed as a self-employed person. Managing finances when you get started can be difficult, but you can apply for grants to help you get set up.
You need to decide if you’re going to be running your business as a sole trader or as a limited company.
As a sole trader you and your business are the same for tax and legal purposes. You will be liable personally for any debts or legal claims. Setting up as a sole trader is simple. It's suitable if you are contracting out your services.
A limited company is a legal entity in its own right. As a company director, your personal assets are protected against debts or legal claims. Being a limited company is more complicated, but you’ll have more legal protection if something goes wrong.
Choosing whether to be a sole trader or a limited company is a personal choice. The right choice will depend on your circumstances and the nature of your business. It’s important to spend some time considering what will work best for you.
As a sole trader you can set yourself up in business with little paperwork or complexity. But you will have less protection if things go wrong, so make sure that you have adequate insurance. You can always form a limited company if your business grows.
A limited company will protect your own finances and assets to a greater degree. You may pay less tax. But you will have more paperwork and responsibilities as a company director. By law, you will have to make your company’s earnings and details of yourself and other directors public.
Managing risk and finances
Being self-employed can be empowering, but it can also be stressful. Think about how much work you can take on.
It's usual not to make much money for the first year, so you'll need to manage when you do not have much business.
When deciding whether to be a sole trader or establish a limited company, you should consider the risks involved. If you fail as a limited company, it’s just the company that fails. But sole traders are personally liable if something goes wrong. As a sole trader, you could become personally bankrupt. This could affect your credit rating over 6 years.
You can do self-assessment yourself or employ someone else to do it. If you keep your finances organised, filing a tax return is straightforward. There is plenty of help available. It's best to file in plenty of time.
There are a few things you should do specific to whether you’re a sole trader or a limited company:
Indemnity insurance is more important. You cannot hide behind being a company.