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Short Guide to Becoming Self-Employed

Are you dreaming of giving up your 9 to 5 to start your very own business? Being self-employed allows you to focus on what you’re passionate about.

You can be your own boss, set your own goals, and tailor your working habits to fit your personal life, making this a desirable prospect for many people.

However, there’s also a lot to consider when becoming self-employed, and this path isn’t always easy.

If you’re thinking of ditching your day job and becoming a self-employed business owner in the UK, here are some of the main things you need to do.

Register as Self-Employed

In the UK, all new business owners must register as self-employed with HMRC to pay taxes. As an employee, your taxes are automatically deducted from your wages through PAYE (Pay As You Earn), which means you don’t have to worry about them.

However, as a self-employed business owner, you’ll have to sort out your taxes yourself and pay them to HMRC, the government’s tax department.

If you earn more than £1,000 in a tax year through your own business, you’ll count as self-employed and have to register with HMRC.

The deadline for registering as self-employed is the 5th of October in your business’s second tax year. You’ll have to pay a £100 fine if you miss this deadline.

Choose a Business Structure

As a new business owner, you’ll have to consider whether you will operate as a sole trader or set up a limited company. 

Becoming a sole trader is the easiest and most popular option for new entrepreneurs, as you’ll have complete control over your business and pay income tax on your profits through Self Assessment.

Limited companies have more legal requirements and are a bit more complicated due to corporation tax and dividends.

Still, one of the greatest advantages is that you won’t be personally liable for financial claims made against your company. 

Most people start as sole traders, but you could set up a limited company further down the road as your business grows.


As a sole trader, you’ll pay income tax on your profits through HMRC’s Self Assessment system. The deadline for filing your Self Assessment tax return is the 31st of January each year, and you’ll also need to pay your taxes by this date. 

The UK government is slowly rolling out its Making Tax Digital (MTD) scheme, which aims to make it easier for people to get their tax right by requiring them to keep digital records and use software to submit their tax returns.

MTD for Income Tax hasn’t been introduced yet. Still, you can get ahead by investing in sole trader accounting software, including features like invoicing, bank reconciliation, billing, and reporting to help you with your accounting.

Open a Business Bank Account

It’s never a good idea to mix personal and business finances. As a sole trader, you could use your personal bank account for your business, but this can confuse things unnecessarily when trying to track your cash flow.

Therefore, as soon as you start a business, you should open a business bank account. With a separate account, you’ll be able to track your cash flow, make accurate financial projections, create effective budgets and manage your taxes.

Keep Track of Your Finances

To succeed as a new business owner, you must keep up with your finances.

By not keeping an eye on your income and expenses, you could quickly face cash flow issues, one of the major causes of failure for small businesses. 

Keeping track of your finances is particularly important for tax purposes. First, as your taxes are no longer automatically deducted from your salary, you’ll have to set money aside each month (usually around 20% of your income) to have the full amount by the tax deadline.

Next, you’ll need to keep track of all of your receipts and business expenses, as you could be able to deduct some of these costs from your taxable profit to reduce your tax bill. Paying attention to these details could save you a significant amount of money!

Business Insurance

Depending on the nature of your business, you’ll need to get certain types of business insurance.

If public members will be visiting your business premises, it’s a good idea to get public liability insurance.

This will cover the cost of compensation if someone claims your business for injury or property damage caused during the day-to-day running of your business. 

You could be legally required to have certain business insurance policies. For example, you’ll need employers’ liability insurance if you have employees.

This covers the cost of compensation claims if an employee becomes injured or ill due to their work in your business.

Businesses can benefit from various business insurance policies, such as professional indemnity insurance, stock insurance, premises liability insurance, and vehicle insurance.

Conclusion: Achieving Success as a Sole Trader

Becoming self-employed and running a successful business is the ultimate dream for people hoping to escape their 9 to 5, but don’t underestimate how complicated this process can be.

To succeed as a sole trader (and avoid costly penalties from HMRC), you must register for Self Assessment, pay your taxes before the deadline, set up a proper business bank account, and get the right business insurance policies.

As a sole trader, you’ll need to always keep an eye on your finances and be disciplined with your expenses, especially in the crucial early years of your business.

As your small business grows, you can also use Freshbooks which provides free accounting spreadsheet templates for small businesses to help manage your business operations.

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