10 Easy Steps to Becoming Self-Employed in the UK
Starting your self-employed journey in the UK can be straightforward if you follow these key steps:
- Choose Your Business Structure:
Decide if you’ll be a sole trader (most common and simplest), a limited company (offers liability protection but more admin), or a partnership. For most first-timers, a sole trader is the starting point. - Register with HMRC for Self Assessment:
This is mandatory. You must register with HMRC by 5 October in your business’s second tax year (e.g., if you start trading in January 2025, register by 5 October 2025). You’ll do this online via a Government Gateway account to get your Unique Taxpayer Reference (UTR). - Understand Income Tax:
You’ll pay Income Tax on your trading profits (your income minus allowable business expenses). Remember your Personal Allowance (currently £12,570 for 2025/26) and the basic, higher, and additional tax rates. - Manage National Insurance Contributions (NICs):
You’ll typically pay Class 2 NICs (often voluntary if profits are low) and Class 4 NICs (on profits above £12,570) to contribute towards your State Pension and other benefits. - Know Your VAT Obligations:
You only must register for VAT if your VAT-taxable turnover exceeds the current threshold (currently £90,000, reviewed annually) within any 12-month period. If registered, you’ll charge and reclaim VAT, submitting quarterly returns. - Keep Accurate Records:
Maintain detailed and organised records of all your sales, income, and business expenses (invoices, receipts, bank statements). This is crucial for completing your Self Assessment tax return accurately and legally required. - Open a Separate Business Bank Account:
While not legally required for sole traders, it’s highly recommended to keep your business finances distinct from your personal ones. This simplifies record-keeping and tax calculations. - Consider Essential Insurances:
- Public Liability Insurance: Highly recommended if you interact with the public, covering injury or property damage claims.
- Professional Indemnity Insurance: Recommended if you offer advice or professional services, covering claims of negligence or mistakes.
- Employers’ Liability Insurance: Legally required if you employ any staff (with very limited exceptions).
- Check for Licences and Permits:
Depending on your industry and specific business activities, you might need certain licences or permits to operate legally (e.g., food hygiene, specific professional registrations). Use the GOV.UK licence finder. - Plan for Your Pension:
As a self-employed individual, you won’t have an employer contributing to your pension. It’s vital to proactively set up your own private pension plan to save for retirement.