Getting started

The self-employed checklist

Great, you’ve decided to work for yourself. It’s a very rewarding career path for over 5 million people in the UK. We’ve put below some of the things you need to do and may want to consider as you’re starting on this journey.

Have you decided on your business idea?

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?

Do you know what business model you’ll be following?

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

Do you have a unique selling proposition (USP)?

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. 

What will your business be called?

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.

Have you written a business plan?

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?

Will you be running your business as a sole trader or a limited company?

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.

Have you register with HMRC?

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.

 

How are you going to keep track of your finances?

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.

Keep track of financial deadlines

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.

Decide if you’ll need to hire staff as part of your business

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.

Consider opening a business bank account

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.

Decide who your accountant will be

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.

Design and build your website

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.

Get support

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.
Sole Trader

Sole Trader

If you are widely referred to as a freelancer, it’s likely you are a sole trader. It means that you can keep all your business’s profits after tax, but also that you are responsible for the debt or financial responsibilities of your company.

How to set up as a sole trader

You will need to tell HMRC that you are a sole trader so that you can be taxed correctly. You will pay your yearly tax return through HMRC’s Self Assessment.

Find out more here.

When do I need to set up as a sole trader?

According to GOV.UK, you need to set up as a sole trader if any of the following apply:

  • You earned more than £1,000 from self-employment between 6 April two years ago and 5 April last year
  • You need to prove you’re self-employed, for example to claim tax-free childcare
  • You want to make voluntary Class 2 National Insurance payments to help you qualify for benefits

Find out more here.

Further support with setting up as a sole trader

IPSE is running an incubator programme to support those who are new to self-employment. This 12-month programme covers everything from setting up, networking, and mental health as a freelancer. For more information, contact one of the membership team.

There is a ‘Set up as a sole trader’ step-by-step plan on GOV.UK, which you can do here.

Limited company

Limited company

A limited company is a company ‘limited by shares’ or ‘limited by guarantee’. ‘Limited by shares’ means the company is legally separate from those who run it, has separate finances, and has shares and shareholders. It can keep any profits it makes after tax.

In comparison, ‘limited by guarantee’ companies are not for profit usually, so they invest their profits back into the company. It is still legally separate to the people who run it and has separate finances.

Limited company owners are particularly impacted by the implementation of IR35. Check out the IR35 advice section for up-to-date information or use our tax and legal helplines to find out more.

The pros and cons of setting up your own Limited Company

This advice has been provided by Integro Accounting.

If you're an existing sole trader or researching the start of your freelance career, then you might be wondering how to set up a limited company. It costs less to register than you might assume, but it's still important to understand the benefits and downsides.

Becoming a limited company can save you money and limit the financial risk from starting a business. And it also gives you a more professional and protected identity, especially if you plan on expanding in the future.

We provide an overview on getting started as a limited company and how forming on a certain date will not save you money in tax!

When is it recommended to set up a limited company?

A limited company can suit any business type and is very straight forward to set up.

The general rule of thumb is that if you are expecting your annual turnover to exceed £25,000 then a limited company will be more tax efficient for you. You may be just starting up and asking yourself “how do I know if I will reach this limit?”, of course, this is only a recommendation and not a necessity. Should you wish to form a limited company under that threshold there are still many benefits in doing so. More on this later.

There are several ways you can register your limited company. You can do so by directly going to company’s house or through an accountancy firm who can complete all other necessary related tasks for you too, such as VAT registration, setting up a business bank account etc. Let’s start with the pros...

What are the benefits of a limited company?

Most commonly when freelancing, many choose to work as a sole trader/self-employed or as a limited company.

As a sole trader, it can be quick and easy to set up, there are low start-up costs involved and less admin to that of a limited company. As a sole trader you are essentially the company. Sadly, the disadvantage also being that you are the sole owner! You have unlimited liability for any issues or debt incurred with the business. In other words, you, personally, are fully liable.

As a limited company you are treated as an employee of the business and therefore, separate to that of the company. This is one of the main reasons over 500,00 limited companies are incorporated each year (according to companies house). The other benefits include:

Greater tax benefits

Often seen as the biggest advantage, you can legitimately pay less personal tax than if you were a sole trader.

You’ll pay Corporation Tax at 19% (the current level). Many directors and shareholders choose to pay themselves with a small salary and a dividend which is more tax efficient. You’ll also be able to minimise your National Insurance Contributions as limited company dividends are not subject to them.

Limited liability

There is peace of mind that comes with limited liability. You and any other owners will not be personally liable for any financial losses made by the business.

Of course, if you are considering taking out a loan then you may need to act as personal guarantor which means you will be personally responsible for that particular loan, and it wouldn’t be covered by the limited liability of the company. Just to make you aware.

Treated as a separate entity

The company will be treated as a separate entity to its owners. That means a separate bank account, separate ownership of assets and separate interests.

Protected name

After you have registered your limited company name it is yours and protected by law – nobody else can trade using it.

Professional image

Depending on the industry that you work in, having a limited company can give you a more professional image.

Securing funding

As a distinct entity from its owners, should you require funding it may be a little easier to secure.

Shareholders

You can sell, or transfer ownership, of shares in the company. If there is more than one shareholder, you should get a Shareholders’ Agreement which will outline the various responsibilities and will be invaluable should a shareholder want to leave.

Pension contributions

Contributing to a pension can bring with it significant tax advantages. Pension contributions can be made before tax is deducted. They can be treated as an allowable business expense and offset against your company’s corporation tax bill.


Now let’s look at the things some people perceive as less advantageous when setting up a limited company:

More regulation

There is no denying there is more paperwork associated with running a limited company. There are increased accounting and bookkeeping requirements, particularly if you employ other people. All these things can be managed easily with the right accountancy firm in place.

Increased accountancy fees

Any good accountant can deal with the paperwork and admin that is involved with a limited company including filing your company tax returns, filing VAT returns etc. It is imperative that these things are done correctly and in a timely fashion which is why accountancy fees can be slightly higher than with a sole trader as there is more to do, although this does vary depending on the industry you operate in.

Management time

With increased accounting and bookkeeping comes additional time that needs to be spent keeping records up to date and ensuring they are correct. Even though your accountancy firm will be able to do a lot of the work for you, everything will be based on the records that you keep so you’ll need to ensure you can dedicate time to keep on top of things.

Public records

The information provided to company’s house including company records, accounts, directors and shareholders is published and available to anyone. If you are concerned that this means you’ll be inundated with sales calls, you can use your accountant as your registered or service address. The advantage of this is that your accountant will also see any mail from HMRC so be able to advise you accordingly. Integro Accounting offer this practise as standard, although some accountants do charge.


Is there a right time of year to set up a company?

Whenever you set up a limited company, your accounting year runs over a twelve-month period. The year end is at the end of the month in which the anniversary of when the company was set up falls. The company can therefore be set up at any time during the year, there is no specific month throughout the year that will save you money.

Even though you can set up anytime throughout the year, it is always best to speak to an accountant to help with successful tax planning.

How can I set up a limited company? 

Chat to your accountant in order to determine if you should be a limited company. There are a number of steps you will have to take in order to set up, but GOV.UK has a handy step-by-step guide to help you.

These steps include: 

  • Choosing a name - You can see what names are available on the companies house name checker
  • Choosing directors and a company secretary
  • Deciding who the shareholders or guarantors are and how many shares they will each have
  • Identifying people with significant control over your company
  • Preparing documents agreeing how to run your company
  • Keeping records
  • Registering your company

Once your company is formed, you will then receive several documents. You will receive a certificate of incorporation along with Memorandum of Association, Forms 10 and 12 and Articles of Association. These are simply to be kept on behalf of your company should you ever need them.

Of course, once your company is formed, there will still be a number of questions you may have. Some of the more frequently asked questions we get asked include:

Is it difficult to be a company director and how do you maintain your company?

The key to running a limited company smoothly is stay on top of your accounts, company expenses and bookkeeping. Once you’ve established a good schedule to keep on top of this, maintaining a limited company is very straight forward.

How do I choose an accountant?

Of course, there are a number of factors to look out for when choosing the right accountant – the right qualifications, good client reviews, what their packages include etc. – for more advice we recommend reviewing the points on the Integro website: Choosing the right accountant

This article explains why you should consider an accountant that understands the needs of limited companies. Integro offer fixed fee packages and a wealth of knowledge in this market with IPSE members offered an exclusive discount. Find out more here: Integro Accounting Marketplace.

Why should I consider using a fixed fee accountancy package?

Many people prefer fixed fee as there are no hidden charges, no surprises and all personal and business tax is covered. Local accountants usually charge by the hour which can become costly, particularly in the beginning when you’re getting used to keeping books correctly or when you want particular advice. With all-inclusive packages, although they may initially appear higher, you know exactly what your costs are and have the added benefit of an accountant being on hand whenever you want further advice without worrying it will incur additional fees.


In Integro Accounting’s latest survey, over 75% of our clients claimed that better work life/balance and flexibility was the number reason they remained contracting. There are so many advantages to being an independent professional and of course there are benefits and disadvantages to setting up as a limited company versus as a sole trader but hopefully this article has pointed you in the right direction. And remember, setting up a limited company doesn’t need to be complicated. Work with the right accountants, keep on top of your admin and dedicate the time to it that it requires. Simple!

For any further advice on being a sole trader, using an umbrella company or going limited, Integro Accounting can help. We offer a suit of services to suit your needs: Accountancy Packages

Limited company formation

This advice has been provided by JSA Group.

Setting up a limited company is exciting, but it can also be nerve-wracking. You will have a range of responsibilities such as registering with Companies House and starting a company bank account. While none of these things are difficult on their own, it can seem like a mountain to climb when you’re new to this way of working. With the help of a specialist contractor accountant, you can ensure everything is done compliantly and your systems and processes are set up in a way that is easy to manage – to give you a headstart from the word go.

To start with, knowing that you have a clear understanding of what money you’ll need, how working this way will impact your pension, the savings you have in place – as well as having a backup plan for your finances – will give you a big boost in confidence.

To help get you on your journey, here are some of the basic accountancy tasks you need to set up to start with:

Your formation checklist

⬜ Determine your SIC code and form your company
A SIC code (Standard Industry Code) will be needed when registering your company. This broadly describes the trading activities of your company.

Register with HMRC
Once the company is formed, registering with HMRC is a relatively straightforward process. You will need to submit a CT61G document that officially notifies HMRC of your new company’s details.

⬜ Register for Self-Assessment Tax
Registering for Self-Assessment Tax will ensure you comply with the rules: almost all company directors have to be registered to file an annual personal tax return.

⬜ Arrange payroll and National Insurance
As a company director, you are classed as an employee as well as an employer. This means you must pay Employees’ and Employers’ National Insurance.

⬜ Register for VAT
You will need to register for VAT if your turnover goes over £85,000 (unless you work in a sector that doesn’t operate VAT). You may also be able to use the flat-rate VAT scheme, which allows you to pay a fixed rate of VAT to HMRC and keep the difference between what you charge customers and what you pay to HMRC.

⬜ Open your business bank account
It’s vital to keep your business and personal finances separate. The best way to do this is through a business bank account, designed to process all your earnings and expenditure.

⬜ Set up bookkeeping arrangements to manage expenses and invoices
You’ll need to keep on top of your finances, keeping a regular record of any company-related expenses as well as copies of invoices you have sent to clients. Regularly updating your records and ensuring you have a clear filing system will help you determine your company profits and help you complete your Self-Assessment Tax Return accurately.

⬜ Create a balance sheet and review it regularly
A balance sheet lists your assets, liabilities and equity for a specific date, illustrating your business’s net worth and the financial health of your company. You can also use your balance sheet to determine how to meet your financial obligations and use credit to finance your processes. It’s sensible to review your balance sheet at the end of each accounting period – perhaps monthly or quarterly, enabling you to track your business’s progress as it grows, and identifying areas for improvement.

⬜ Create a P&L Statement for regular review
A P&L (Profit and Loss Account) or income statement shows how much profit and loss was generated by your company over a given period. It summarises the revenues, costs, and expenses incurred and should be issued monthly, quarterly and annually. It is important to compare P&L Statements from consecutive accounting periods to identify changes in revenue, operating costs, research and development expenses and net earnings over time.

⬜ Create a cash flow statement and forecast
A cash flow statement is a financial statement which summarises the quantities of cash (or cash equivalents) entering and leaving your company. The cash flow statement measures how well your company generates cash flow to pay debt obligations and fund ongoing expenses.
Once your business is up and running, you should discuss the options for preparing a cash flow forecast with your accountant. A cash flow forecast is the same information as a cash flow statement but based on future expected activities. The forecast, therefore, is very useful so that you can make sure your business has the funds it needs to stay afloat. Cash can often be required before all of your customers have paid you, so being familiar with your cash flow patterns is a great help in running a successful business.

Regular requirements

Once you’re all set up with the items above, it’s best to keep on top of your finances by dedicating around 20 minutes per week to record-keeping. Here’s a list of some of the jobs you need to do, and how often you’ll normally need to attend to them.

Weekly tasks will include things like invoicing your clients/recruitment agency. You’ll also need to check your bank statements and keep accurate records of allowable business expenses (filing receipts for safe-keeping).

Once a quarter, you’ll need to submit a VAT return (if you’re VAT registered) and pay your Employers’ and Employees’ National Insurance and PAYE (if your pay level requires it). You should also create an updated P&L Statement and spend time analysing this against the previous quarter’s.

Annually, you will also need to submit an Annual Report to Companies House as well as year-end accountants to HMRC. You’ll also need to create a P&L Statement for the year and analyse this against that of the previous fiscal year.

Support and advice

When considering contracting through your own limited company, it’s important to seek specialist accountancy advice to check that this is the right route for you – as well as so you can get support with your company formation and ongoing financial management

How to pay yourself from a limited company

Having your own limited company comes with many perks to being your own boss… better work/life balance, flexibility, and no office politics. But the number one benefit is the tax advantages that can maximise your take home pay. You might be wondering how to pay yourself from a limited company. This is where dividends come in.

Most veteran freelancers are probably aware that, if you run your business as a limited company, paying yourself (at least partially) through dividends is tax efficient. But there is a right way and a wrong way to do this.

Read the guidance below from Integro Accounting to learn how dividends work, the benefits, the restrictions and whether paying yourself through dividends is right for your business.

How to take dividends from a limited company

 

Umbrella companies

Umbrella companies

Since the implementation of the new IR35 (Off-Payroll) reforms, many contractors are feeling disheartened about their future in self-employment - not least because many are having to work through umbrella companies for the first time.

Many freelancers who were previously working ‘outside’ IR35, have now been told they can no longer provide services through their limited company, raising questions about how they can continue working compliantly whilst maintaining the flexibility they have previously enjoyed.

There are various options available to you as a contractor depending on how you see your career progressing. Follow the link below to learn more about these options. 

What are my options post-IR35?

 

Where next?

Need more support?

General Self-employed advice

If you're looking for self-employed advice topics other than IR35, we can help.

We have a dedicated advice page to help you navigate directly to specific sections including brexit, coronavirus, business insurances, and ways of working. 

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