Ways of working

Do you know who your potential clients might be and how you’re going to sell your products or services to them? Have you done any market research on your competitors and what they offer/charge?

Broadly speaking there are 4 different types of business model?

1. Product model: You develop a product or standardised service and sell it to customers. The value proposition is transactional and ideally many customers will buy it.
2. Solutions model: you engage with the customer about a problem they face and provide an integral solution. The value proposition is relational, to tailor solutions for each customer.
3. Matchmaking model: you join buyers and sellers via an online or physical marketplace. The value proposition is transactional to facilitate an exchange.
4. Multi-sided model: you provide different products or services to different customer groups. Value proposition is multi-sided as one customer group gets additional benefits from the other group’s transactions

This isn’t always possible or necessary but it’s worth considering how you’re different or what you do better than others, as this will form the basis of your elevator pitch. 

Will it be your name or do you want to have a company name? While you’re deciding don’t forget to check Companies House to see anyone else has that name of if it’s already been trademarked.

Even though it’s just you in your business you should still have a basic business plan. Some of the areas you need to start looking at are:

• Set up costs such as any equipment you might need to buy, what insurances you need?
• Will you have any distribution, travel or premises costs?
• Will you pay for marketing, how will you communicate with your audience and where might your core customers be?
• Are there any partnerships you can establish to help with bulk sales?
• Will you revenue be subscription based or new direct sales every time?
• What is the minimum number of clients/customers you need ideally to start making a profit?
• Do you need to look for a bank loan or business grant to get off the ground? If so, you would need a business plan for these?

One of the questions that self-employed people have to ask themselves after they start their career is should they operate as a sole trader, or should they incorporate and form a limited company through which they can provide their services.

There are advantages and disadvantages to both, and there's lots of free advice out there. When you’re a sole trader, legally, you and your business are one and the same. If you’re running your business through a limited company, the company is a separate legal entity from you. You will most likely be a director of the company and a shareholder. Broadly speaking, if you operate for a limited company, it can give you more flexibility and options of how you handle income. However, there are a few more compliance burdens on you.

If you operate as a sole trader, it's a bit more straightforward. You simply work and get paid as an individual – which is the way most freelancers work. You still have to pay tax on your own earnings but there are a few less of those compliance burdens. You are also more responsible for your company’s debt than if you set up a limited company.

Talk to your accountant to work out what's best for you and your business, and read GOV.UK’s advice on setting up your business.

General advice for setting up your business

For tax and legal enquiries, IPSE members have access to our dedicated tax, legal and contract helplines. You can find the number on your member dashboard.

For business support, you can call helplines set up by government.

England: Call 0800 998 1096 any time between 9am-6pm Monday to Friday.

Scotland: Call Business Support Scotland on 0300 303 0660 between 8:30am-5:30pm Monday to Friday.

Wales: Call Business Wales on 0300 060 3000 between 8:30am-5:30pm Monday to Friday.

Northern Ireland: Call Invest on 0800 181 4422 from 8:30am-5pm Monday-Friday.

For financial support, read more about the grants and loans available to you here.

Read more about sole trader vs limited company from one of our accountancy partners.

Once you know what you’ll be doing and how you’ll be running your business you need to let HMRC know. As a self-employed person you will be liable to complete a Self-Assessment tax return. You must register by 5 October following the end of the first tax year for which you need to file a Self-Assessment tax return. If you fail to do so by this deadline you could receive a fine. You can register online or over the phone; you’ll need your National Insurance number, along with your home and business details.

You will also need to sign up for a Government Gateway account in order to file your tax return. It is important that you do this well in advance of your first Self-Assessment deadline, as the process requires HMRC to post you an activation code.

 

You need keep hold of your receipts and invoices, along with your bank statements, and ensuring that these are filed in a suitable manner when it comes to your tax return. You should definitely consider investing in bookkeeping software to help you manage your records. There are some great products on the market for you use. If you’re going to use an accountant, it’s also worth seeing what software they partner with for ease.

It is important that you make payments to HMRC in a timely manner. Missing deadlines will result in fines. There are two key Self-Assessment tax deadlines: 31 January, and 31 July. On 31 January of each year, you will have to make your ‘balancing payment’, plus your first payment on account, with the second instalment of the payment on account coming due on 31 July.

Additionally, you will be required to make Class 2 National Insurance Contributions and, depending on your income, sometimes Class 4. You should set up a direct debit to make these payments in order to ensure that you do not fall behind; you can choose to pay either monthly or every six months.

Being self-employed doesn’t mean that you can’t hire people; it simply means that you are solely responsible for the business. Many self-employed people hire employees to help them operate, but it is important that you are aware of the rules around employment.

If you decide you’re going to open a Ltd company then ideally you must have a business bank account. As a Ltd company the business is a separate legal entity to you so should have its own bank account. If you decide you want to be a sole trader, we still recommend you consider a business bank account as it makes you look more professional, helps you to keep better visibility of your finances and it can often come with a number of perks.

The right accountant shouldn’t just be viewed as finding someone who can complete your tax returns, they offer a lot more. The best ones can be a sounding board and counsel for you when it comes to business strategy. They can also help advise on the best business structure for you. At IPSE we have strong relationships with a handful of accountants and can offer a personalised introduction to them if you’d like a shortlist to pick from.

There are loads of great platforms out there that have templates ready to go and all you have to do is populate the pages. Have a think on if you need an ecommerce element to your website if you’re selling products. Don’t forget to set up social media accounts when creating your website. People google first now for everything so if you don’t exist online, they might not trust hiring you. Don’t forget there are a lot of freelancers out there that can help you with all this if you need help. There are also many free tutorial videos for you to watch. If you do employ outside help setting all this up make sure you keep full ownership of any logins, domain names, emails and social accounts.

Remember that just because you’re working for yourself doesn’t mean you’re alone! Our incubator is here to help support you either via IPSE or our community.

While the eligiblity criteria for the third SEISS grant is the same as the first two, there has been an important change to the declaration criteria for 'SEISS 3'. 

 

n SEISS 1 and 2 your business only needed to be “adversely affected” - this broadly meant any adverse impact due to Covid-19 would allow you to qualify qualified for the scheme (e.g. increased cost of buying things such as PPE/equipment; reduced work, cancelled or delayed projects; or if business interrupted by illness, self-isolation or caring/shielding). You also had to say you intended to continue trading.  

For SEISS 3, there are two changes. First your business needs to either be impacted by “reduced demand” or be “unable to trade” from coronavirus in the qualifying period for SEISS 3 (Nov 1 - 31Jan). Second, you “must decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in”. In other words, not only do you have to evidence reduced demand or inability to trade for the period Nov - Jan but you also need to have a ‘reasonable belief’  that this meant your profits will be lower than they otherwise would have been for the whole tax year you report in.

Unfortunately, HMRC has provided no clear definition of what constitutes a “significant reduction” in trading profit. HMRC says it cannot make this decision for a business because individual and wider business circumstances will need to be considered (it has published some examples online here) and you will need to make an “honest assessment”.

It is important to note here that – unlike SEISS 1 and 2 –  SEISS 3 is a forward looking test based on considering a reduction in trading profits for your ‘basis period’ (the tax year you report in, will be March or April). Therefore, to make a claim you must consider whether any reduction in demand in the period 1 Nov – 30 Jan will significantly reduce your trading profits as a whole for the tax year ending in March/April (this will depend on your own reporting period). For this reason, HMRC says “You should wait until you have a reasonable belief that your trading profits are going to be significantly reduced, before you make your claim.” So if you are unsure about whether you might be eligible when the grant application opens in November, you may want to wait until later in January (29 Jan is your last chance) before making an application.

But what counts as ‘reduced demand’ or being ‘unable to trade’?

For the former, HMRC says this applies if your business has been impacted by “reduced demand, activity or capacity due to coronavirus” - e.g. fewer customers, contracts cancelled, less work. However, they are clear that “you must not claim if the only impact on your business is increased costs” such as purchasing face masks or cleaning supplies. Increased costs on their own – without loss of work - do not constitute a valid claim.

‘Unable to trade’ applies to you if you’re temporarily unable to carry out your business activities due to coronavirus in the qualify period (e.g. had to close due to restrictions, instructed to shield or self-isolate, you've tested positive, cannot work due to caring responsibilities). The only exception that does not count is if you have returned to the UK from travelling abroad.