If you’ve decided it’s time to take the plunge and reap the benefits of running your own business, you’re not alone. In the UK in 2017 there were over 4 million entrepreneurs doing just that. Firstly, you need to decide which mode of working for yourself will suit you and your business aspirations best. Working for yourself falls into three main categories. You can work as a sole trader, register a limited company or form a business partnership. But which one is right for you, and what do you need to do too keep everything legal?
Registering your Business:
All it takes to get up and running as a sole trader is to register yourself with HMRC for self-assessment, which can be done online. You also need to register to pay Class 2 and 4 National Insurance contributions. To keep major outgoings to a minimum you can pay your NI contributions monthly. Tax returns need attending to every year and to be paid on time to avoid hefty financial penalties. The downside – while you get all the profits, you are also solely responsible for any debts accrued by the business.
In a Business Partnership two or more people are involved in operating the business. The set-up is similar to that of a sole trader. All partners share the profits and pay their own tax. They are also equally responsibility for any business debts which might accumulate. To register with HMRC, a trading name needs to be picked and a ‘nominated partner’, who will be responsible for tax returns and bookkeeping, has to be agreed.
The criteria for setting up a Limited Liability Company are stringent and unless you have previous experience, employing the services of a chartered accountant is to be recommended. You will be paid a salary by the company, but as a Company Director there is a raft of responsibilities you need to understand and comply with.
Even as a sole trader, it’s a good idea to open a business bank account to keep personal and business finances separate.
Make Sure You´re Covered:
Whichever business model you choose, ensuring you are adequately insured is a must. Public liability insurance to cover any possible injury to third parties when you are working, Upgraded insurance to cover the theft of tools and equipment from lock-up or vehicle. Insurance to cover theft or damage to computers, laptop, smartphone and other digital devices in your home office will be needed and, if you intend to employ staff, by law you will need employer´s liability insurance. If you work from separate business premises; shop, workshop, office or warehouse you will need insurance to cover all stock, furniture and office equipment as well as business interruption cover. If you’ve decided you’re in for the long haul, taking advice on a good private pension package is well worth considering.
If you need premises for your new enterprise the council is a good place to start. They can often point you in the direction of suitable premises. They can also tell you whether you need any specific licenses and what the health and safety requirements will be.
Becoming a single sole trader is the most popular option. Do your homework. Draw up a cash-flow forecast and profit and loss projections. By minimising your risk of failure, you increase your chances of building a successful and profitable business.