How to become self-employed

Thinking about becoming self-employed? Before becoming your own boss, you might want to think about drawing up a business plan, saving for an emergency fund and opening a separate bank account. We speak to three experts to find out more.

In the current climate, many people will consider working for themselves. Perhaps you have a new business idea, or want to turn a side-hustle into a full-time job. Whatever your goals and circumstances, there are some practical and financial steps to consider before taking the leap from full-time employment to being your own boss.

freelancer working on phone in coffee shop

Understand you will have to pay your own benefits

The biggest change when it comes to working for yourself is the lack of benefits you receive. Corporate maternity and paternity leave, sick pay, paid holidays and employer pension contributions do not exist if you are your own boss.

So, it is very important to put aside as much money as you can. Depending on which financial adviser you speak to, it’s best to save between three to 12 months’ worth of outgoings, but this will depend on your personal circumstances.

The longer you can rely on your own savings, the cheaper it will be to buy policies like health insurance or income protection, as you wouldn’t need the policy to kick in straight away if you were ill or your income was disrupted.

“If you’re self-employed and off sick, it would be incredibly expensive to be paid from day one,” says Becky Taylor, managing director and certified financial planner at Aurea Financial Planning. “A one month deferral period makes your policy less expensive.”


Don’t forget about your pension. Paying into a pension now will reap rewards in retirement, yet a recent survey from the National Employment Savings Trust found that only 24% of self-employed people in the UK contribute to a personal pension.

“If you’re starting a business from scratch, paying into a personal pension may be the last thing on your mind,” says Becky. “But it’s something to be mindful of. It might be a good idea to at least pay a minimal amount into a pension to keep things ticking over.”

If you don’t contribute to your pension for a few years, the chance to make it up in future is limited. For 2020/21, the maximum tax-free contribution you can make is £40,000 per year, or 100% of your earnings, whichever is lower. You can only carry forward this tax relief for up to three years.

Draw up a business plan

You may have savings, but do you know where your revenue will come from, and how much?

“Lots of people go freelance without mapping where their profits will come from, what their business model is and what their ambitions are,” says Angharad Salazar Llewellyn, founder of The Flex Network, which connects businesses that are minded towards sustainability and flexible working. “Draw up a plan, even if it’s one page, as it will provide you with some structure.”

Other factors to note might include your target audience, how you will market and promote your work, and how you wish to contribute to society.

Collaboration is key

Angharad strongly believes in the power of networks and collaboration to help freelancers get off the ground, because isolation and motivation can be issues for people who are self-employed. As well as IPSE, there are all kinds of freelancer networks out there, including for parents.

“If you have an idea you want to develop, for example, you can call someone and chat to them about it; you can big up people’s ideas and they can do the same for you,” she says.

“If you view people as competition it can become stressful and lonely. It should be a case of collaboration over competition. What you do will then be much more enjoyable.”

Open a business bank account

Once you have saved money and drawn up your business plan, you should register as self-employed with HMRC – as you will pay your own tax. Charlotte Cosson Hobbs, of Hobbs Accounting Services, recommends putting aside approximately 30 per cent of your revenues towards tax, national insurance and other payments such as your student loan.

She also recommends opening a separate bank account, not only because it looks more professional but it will also help with your tax accounting.

“It’s a good idea to shop around to see which bookkeeping and tax accounting software you want to use – there are apps which make it easy to capture your invoices and expenses, and your bank account can feed directly into this software, so not having a separate account makes it more complicated,” she says.

Starling Bank offers free banking for small and medium sized enterprises and you can also link your account to insurance and tax accounting software, and separate out your business expenses into different categories.

There is no need to open separate bank accounts for different saving goals, as the Starling Spaces feature allows you to allocate funds towards certain projects within the same account. For example, within the same account you can put aside money for marketing your business, travelling or paying suppliers.

Keep good records

As your own boss, it’s really important to make good records of your incomings and outgoings, what you need to put aside for tax, invoices and receipts for expenses. Software can help with this; much of it is free and can plug in directly to your bank account. Starling Bank business accounts offer a wide range of such business software integrations.

Don’t forget about your tax-deductible expenses, which can include things like travel, office equipment and even a proportion of your utilities and rent, if you work from home.

“I do advise my clients to sit down once a month and do their bookkeeping, especially if they don’t use software to keep on top of it,” says Charlotte, “otherwise you can miss expenses and many are tax deductible – so it’s worth doing.”

Although filling out a self-assessment tax return as a freelancer or sole trader is relatively simple online, it can get more complicated if you make money from different sources, or you have to pay tax on, say, investments or property income. In that case, having an accountant to do your tax return might be prudent.

Freelancer or LLP?

Now it might be time to consider if you want to remain as a sole trader or create and register a company.

Many accountants agree there is a tipping point for profit, normally between £30,000 - £50,000, depending on your circumstances, where it might make sense to open a limited company. The accountancy fees would be higher, Charlotte explains, but a company structure can be more tax efficient and can protect your assets from litigation. Companies House offers helpful resources on which structure could be best for you. Whatever you decide, you will also need to register for VAT if you generate a taxable turnover of more than £85,000.

Think long term – and think positive

Once you are set up, the long-term journey begins. As Angharad, who has worked for herself for more than 15 years, says, being self-employed is not for everyone.

“It can be positioned as a solution to life’s problems but it’s not – it’s simply another way of working and a career choice in itself.”

She adds that staying positive and being resilient are more important than ever.

“When I started my career, I assumed it would be this upwards trajectory. In fact, it’s a series of small fires you have to light, which is a continual investment of energy. But the freedom and rewards can be very much worth it.”

Get set for freelance life by protecting your business for as little as £8.50 a month with an IPSE membership, and set up your free business bank account with Starling today.

Meet the author


Starling Bank’s award-winning business account is designed to help self-employed people do less banking – and more of what they love. Learn more about IPSE's partnership with Starling here.