After the financial crash in 2008, record numbers of people registered as sole traders and started working for themselves.
Lockdown as a result of coronavirus has caused a flurry of business closures and redundancies. People who have lost their jobs during this time may look to set up as a sole trader to tide themselves over until the economy sees an upturn. Others may want to take their professional life and prospects into their own hands and have more control and foresight, of their stability, finances and work security.
However, it’s not just a case of popping a post on social media and heading out to start working. There are procedures and processes that must be followed when trading within the UK.
Read on for some quick tips for setting up as a sole trader.
Setting up as a sole trader
Things to consider
Before setting up as a sole trader, do ensure it’s the right thing for you. There are plenty of reasons to go self-employed, including more flexibility, a better work/life balance, and an opportunity to earn more than you would when working on a salary for a company.
Some questions to ask yourself before taking the leap are:
- Have you thought about losing the benefits of being an employee, such as holiday pay, sick pay, employer pension contribution, and other benefits you might have from being employed by a company.
- Do you feel confident about managing your own business, including cashflow, keeping records, and completing tax returns. Moreover, you may have to chase people for payments, and manage challenges or complaints, etc.
- Are you clear about how you will get clients or customers?
- Do you have any life-changing events that you should take into account, like moving house or a new baby, that could take time away from the days you can work (and where you would be paid if you were to take annual leave if you were employed by a company).
- It can be more difficult to get a mortgage when you’re self-employed. Be sure to do your sums, and it’s good to have a few years of healthy accounts behind you if you will be approaching banks or building societies for mortgage quotes.
Setting up as a sole trader – going self-employed
If you’ve considered the questions above and are still keen to set up as a sole trader and ‘be your own boss’, here is a checklist that can help you get started.
- Tell HMRC that you’re self-employed for tax purposes so they know you’ll be paying your tax through Self Assessment. You can register on the gov.uk website.
- Set up a business bank account.
- Establish some processes for monitoring cash flow, profits, and evidence of your business expenses. Those who do this well have a much easier time when it comes to completing their tax returns.
- Secure business insurance. You’ll tend to need professional indemnity insurance and public liability insurance, which are the main types of business insurance to consider. Remember to check your car insurance, too, if you’ll be using it to travel to meet clients, etc.
- Think about setting up a private pension. You won’t be paying into a workplace pension, so it’s a good idea to set up a private pension, ready for your retirement. Although you won’t benefit from employer contributions, the government contributes into private pensions in the form of tax relief.
How we can help
Ensuring you get everything right, from insurance, data protection, contracts and Health and Safety obligations and the like, can be a mean feat, particularly if you don’t have a business background, or previous knowledge of setting up as a sole trader.
To make sure you get everything right first time, our commercial solicitors can work with you to go through your checklists and get you prepared for the next step in your professional journey. Getting something wrong or not being fully prepared could be costly and prevent you from reaching your full potential when you go self-employed.Contact us