How to go

self-employed
in the UK
by Jade Wimbledon/Jessie Day
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How to go self-employed
in the UK 2
 Wondering how to become self-employed? We’ve got
some tips for getting started – from weighing up the
pros and cons of self-employment, to understanding
tax and benefits when you’re self-employed.

But there are downsides to self-employment,

How to become
and when you’re thinking through being
self-employed
self‑employed there’s lots to take into account.
There are five million self-employed people in

the UK right now, contributing £305 billion to the Being self-employed – is it

national economy. Everyone knows someone
who’s done it, but how do you get started? Read
our guide to going self-employed.
right for me?
There are pros and cons to being
self‑employed, and when you’re weighing

up self-employment against employment

Should I go self-employed?
there are a number of things that you need

There are plenty of reasons to go self-employed: to consider, including:

you get to ‘be your own boss’ and work more

• are you clear about how you’d get clients
flexibly. And depending on your industry you
or customers?
may be able to command a much higher rate

than the salary you’d be able to achieve as an • do you have some money to set yourself

employee. Broaden your horizons with our up?

guide to where in the UK commands the

• would you be able to cope with periods
highest rates.
of little or no income?

How to go self-employed
in the UK 3
• do you feel confident about managing • your work can be more varied, as you may

your own business, for example managing be working on several different projects for

cashflow, keeping thorough records and different clients at any one time

completing tax returns?

• you can explore your creative and

• have you thought through the impact of entrepreneurial side as you build your own

losing employee benefits, for example business

holiday pay, sick pay, and employer

• you can deduct certain costs - travel and
pension contributions?
some utilities bills, for example - from your

• if you were self-employed, would you income when you’re calculating your tax

miss working alongside colleagues? liability

• do you have a space where you’d be able • you may have the potential to earn more

to work, and any equipment you need, or money, as day rates for self-employed

do you have budget to buy it? consultants and freelancers tend to be

much higher than salaries

• do you have any life-changing events to

take into account, for example an upcoming • you should be able to ditch your commute,

house move, wedding or new baby? as you’re likely to work from home, or from

your own business premises.

The advantages of being

self-employed The disadvantages of being self-
employed
There are plenty of perks of being self-

employed, and this list isn’t exhaustive: It’s important to take into account the

disadvantages of being self-employed too, in

• you have more flexibility and control, so
particular the risks and costs that come with
it may be easier to fit your work around
self-employment, for example:
other commitments and responsibilities,

including childcare

How to go self-employed
in the UK 4
• finding clients or a route to market can

initially be challenging

• there are likely to be some start-up costs, so

you may need some money to get started

• your income isn’t guaranteed, which

can sometimes make it hard to keep up

with rent or mortgage payments, loan

payments and living expenses

• you bear the responsibility for the failure or

success of the business, so you don’t have

much back-up if things go wrong

• if you take a holiday or can’t work because

you’re unwell, you won’t get paid

• it can be more difficult to get approved for

renting property, taking out a mortgage or

getting a loan when you’re self-employed

• when you’re self-employed, it can be

difficult to separate your home life from your

work life, and to get a good work-life balance

• if you’re working on your own a lot, being

self-employed can be isolating

• you need to deal with the admin side of

your business, which involves bookkeeping

and complying with regulations

How to go self-employed
in the UK 5
 registering with Companies House, drawing
Going self-employed for
up a memorandum of association, and paying
the first time
corporation tax. Take a look at our article on

When you’re going self-employed, there sole traders versus limited companies if you’re

are several things you need to do, including not sure about the differences between these

telling HMRC that you’re self-employed for business structures.

tax purposes, thinking about your business

structure (which has an impact on the Starting up as a sole trader

paperwork you’ll need to complete), and
If you’re going self-employed in the UK as a
sorting out insurance.
sole trader, these are some of the things you

need to do:
Going self-employed
checklist • tell HMRC that you’re self-employed, so

that they know you need to pay tax through

When you go self-employed, you’re effectively
Self Assessment and pay Class 2 and 4
setting up a business, even though you might
National Insurance contributions. Go to the
not see it that way. This means that you need
government’s website to register, or look
to decide on a business structure.
at our article on registering as a sole trader

We’ve taken an in-depth look at setting up as with HMRC for more information

a sole trader - usually the simplest business

• set up a business bank account. If you’re
structure to choose when you go self-
struggling to pick a provider, check out our
employed. However, you may also decide to
article for a round-up of some of the best
incorporate as a limited company.
business bank accounts

Starting a limited company • establish a process for recording your profits

and evidence of your business expenses.

If you’re starting a limited company, there
This will make it much easier when it comes
are certain things you need to do, including
to completing your HMRC tax return

How to go self-employed
in the UK 6
• if you’ll be working from home, check your • think about your pension – since you won’t

tenancy agreement or mortgage agreement be paying into a workplace pension any

to make sure you’re not contravening any more, it may be a good idea to set up a

terms. You may need to notify your landlord private pension so that you’re still putting

or mortgage lender money aside for retirement. Although you

won’t benefit from employer contributions,

• sort out your insurance – professional
you’ll still get government contributions into
indemnity insurance and public liability
your pensions in the form of tax relief
insurance are the main types of business

insurance to consider, but there are

Paying tax when
plenty of other covers too. And if you’ll
self-employed: how
be employing anyone, you’re usually
much will I pay?
legally obliged to have employers’ liability

insurance. Take a look at our self-employed The Office of Tax Simplification (OTS) has

insurance page for more details called for an urgent, digitally focused review

How to go self-employed
in the UK 7
of the self-employed tax system, calling it company during the rest of the week. This

‘too difficult (...) to understand’. Until their means you’re both self-employed and

suggestions are actioned, however, it’s worth employed, and you’ll pay tax through both

getting on the front foot with your tax, as soon PAYE and Self Assessment.

as you go self-employed.
You could also be self-employed but only

How much tax you’ll pay as a self-employed work for one company (for example if

person will depend on how much money you have a single major client), but in this

you’ve made and the ‘allowable expenses’ case HMRC will be keen to make sure that

you’ve incurred in the course of your business. the company isn’t just calling you ‘self-

Certain business-related expenses can be employed’ to avoid paying National Insurance

subtracted from your income when you’re contributions and giving you employment

calculating your taxable profit. rights. To count as self-employed you usually

need to have choice over when and where

The tax-free personal allowance and the tax
you work and you’ll usually be paid when
bands are the same for self-employed and
you issue invoices. Check the government
employed people, so for 2020-21 you can
website or speak to an accountant if you’re
make up to £12,500 before you need to pay
not sure – you can also read our guide to the
tax. You’ll then pay the basic rate of income tax
off-payroll working rules (IR35) for more.
(20 per cent) on income up to £50,000. The

higher rate of 40 per cent applies to income

Being self-employed and
over £50,000, and on income over £150,000
getting a mortgage
you pay the additional rate of 45 per cent.

One of the disadvantages of being

Going self-employed but self‑employed is that it can be more difficult

working for a company to get a mortgage, but it is possible.

Of course, you may be going self-employed When you apply for a mortgage and you’re

part-time, and continue working for a employed, the lender will usually confirm

How to go self-employed
in the UK 8
your income by asking for payslips and bank and certain business-related travel. Check the

statements. When you’re self‑employed, you’ll government website carefully though, as you

usually need to provide business accounts could get in trouble with HMRC if you subtract

including a copy of your self‑assessment tax something that’s not an allowable expense, or

return forms. if you don’t have evidence of the expense.

Lenders often ask for between two and For a full breakdown, take a look at our guide

three years of accounts, so you may not be to self-employed tax deductible expenses.

able to get a mortgage if you’ve only just

become self-employed. Self-employed benefits

Usually, the lender will take an average of Depending on certain factors, you may

your income over the last two or three years be able to claim certain benefits. If you’re

to calculate how much they’re willing to self‑employed and not earning very much

lend you. They may also ask to see other money, you may be eligible for income

documents - business plans, for example - support or working tax credit, although the

to check that they’re confident you’ll be able latter has been replaced by universal credit for

to keep up with the mortgage repayments. most people. Check the government website

for more details – you can also read our guide

What can I claim for as to self-employed benefits entitlement.

self-employed?
Self-employed tax credits
Self-employed allowable expenses
You can claim Working Tax Credit when

In terms of what you can subtract from you’re self-employed, but in April 2015 the

your income when you’re figuring out the rules were tightened up. Self-employed

self‑employed profit that’s taxable, the list tax credit claimants must show that they’re

includes business insurance, part of your utility trading on a commercial basis with the aim of

bills if you work from home, office costs, stock making profits, and that their self‑employed

How to go self-employed
in the UK 9
work is structured, regular and ongoing. which are known as the Minimum Income

There’s further information on the criteria in Floor. However, a different method may be

this government briefing document. used if you’re in your first 12 months of self-

employment, during which the Minimum

Self-employed Housing Benefit Income Floor may not apply. During this

period you may also be entitled to meetings

Again, this is being replaced by Universal Credit.
with a work coach who’s specifically trained

You may still be eligible for Housing Benefit and in self-employment.

council tax reduction if you’re self-employed but

not earning very much money, and certain other Self-employed grants
factors apply. When the council is calculating
You may be able to get a grant from the
your eligibility for benefits like Housing Benefit,
government called a New Enterprise Allowance
they’ll probably ask to see your business
if you’re going self-employed. You may be
accounts for the last financial year, or a forecast
eligible if you or your partner has been receiving
if you haven’t started trading yet.
Jobseeker’s Allowance or Employment and

Support Allowance, or if you’ve been receiving

Self-employed Universal Credit
income support, or if you’re a lone parent,

You may be eligible for Universal Credit sick or disabled. If your business is approved,

if you’re self-employed. You will have to you could get a weekly allowance worth up

declare your earnings at the end of each to £1,274 in total, over 26 weeks. You can also

monthly assessment period, and will have to apply for a loan to help fund your startup.

give details of any payments into or out of

There are some other small business grants
your business. Your work coach will also ask
available too, from the government local
to see records of customers and suppliers,
councils, the EU, and some organisations. Use
and marketing materials.
the government’s finance finder tool to see if

Your Universal Credit payments may be there’s a grant that could be suitable for you.

calculated based on your assumed earnings,

How to go self-employed
in the UK 10
You can also read our guide to small
Business ideas that get you out
business grants.
and about

Still deciding what self- • dog walking business

employed business to
• cleaning business
start?
• courier business
Take a look at our range of guides

to going self‑employed and how to set

General guides on starting up on
up your own business.
your own

Business ideas that let you work • how to become a freelancer

from home
• how to start a home business

• clothing brand
• how to start an online shop

• cake and baking business

How to go self-employed
in the UK 11
Further
reading
Coronavirus: what support is
available for small businesses
and the self-employed?
Click here for more >

What to do when a client doesn’t

pay: tips for getting paid
Click here for more >

7 self-employed tax changes

or 2020-21
Click here for more >

How to go self-employed
in the UK 12