When wanting to take that step into self-employment, it may feel like there is never a right time and financial uncertainty may leave you reluctant.
With career flexibility and tax advantages making it an attractive option, it is important to understand how the process works first.
Having to learn to manage your taxes effectively and comply with HM Revenue and Customs (HMRC) regulations can seem intimidating, but with legal help, you can get it right.
How to choose the right type of self-employment?
Before you take that first step, it is important to decide what form your business will take.
The most common structures are:
- Sole trader – You run your business as an individual and keep all the profits after tax.
- Partnership – Two or more people share the profits, losses and responsibilities.
- Limited Company – Your business has become a separate legal entity, which offers financial protection.
- Limited Liability Partnerships (LLP) – Combines elements of partnerships and limited companies, limiting personal liability.
When choosing the right type of self-employment for you, reviewing how this affects your tax obligations, access to funding and the amount of risk you take is important.
What are the key advantages of self-employment?
Self-employment can offer greater tax advantages as self-employed workers will be taxed at an effective rate of 17 per cent in 2025-26, in comparison to the 27 per cent that employees receive.
Also, you can claim tax-deductible expenses, such as equipment, travel costs, supplies and even a proportion of household bills if you work from home.
Even for lower earners, the self-employed will benefit more as employers have to pay National Insurance Contributions (NIC) on earnings over £5,000 but no tax is due on self-employment until £12,570.
The Government also offers initiatives to help the self-employed and small businesses, such as start-up funding and mentoring through programmes like The King’s Trust.
By opting for self-employment, you gain greater control over cash flow management, as instead of having tax deducted from each paycheck, you pay your tax bill twice a year on 31 January and 31 July.
However, you do have the option to file for your self-assessment tax return anytime after April 6, following the end of the tax year you are reporting on.
The sooner you submit your returns, the longer you have to effectively pay your bill and early filing can allow you to split the cost as much as you like, improve financial planning and budgeting and receive quicker tax refunds.
By understanding what is on offer, you can help make an informed decision on the next best steps for your business.
How to start the process?
The easiest way to begin a self-employed journey is to register as a sole trader, which involves registering for self-assessment with HMRC within three months of starting your business.
As a trader, you must document accurate financial records and pay tax on profits above your personal allowance of £12,750, as well as National Insurance contributions if your profit exceeds that threshold.
If you are going into business with others, you might consider a partnership where profits and losses are shared among partners, who each pay their own tax and National Insurance.
However, setting up a limited company may work better for you as it separates personal finances from the business and gives you more protection and administration.
Limited companies must register with Companies House, submit annual accounts and pay Corporation Tax on profits.
How can I make the right choice?
It can be overwhelming trying to figure out what business structure will suit you, but reaching out for expert guidance can help you understand the process better.
Our team of accountants can advise you on whether starting off as a sole trader is best for your business or if a limited company could offer greater financial protection for you.
We will guide you on how to operate as tax-efficiently as possible to minimise tax liability and maximise your take-home pay.
Self-employment is not always a guaranteed success, but for those who seek professional advice and plan carefully, it can offer personal freedom and career growth.
With the right preparation and legal steps, you can confidently drive your business to success.
For expert financial advice and support, contact our team today.
