Self Employment
Why Become Self Employed?
There is encouragement from the government for people to become self-employed and at first it seems attractive, especially if you have recently become unemployed or redundant. Although one of the main attractions of becoming self-employed is no longer having to work for somebody else there are several disadvantages you should consider. These include not being certain of having a regular income, having to arrange your own sick pay and pension and probably having to work long hours.
What kind of business
If you are considering self-employment and do not already have an idea of what you want to do, you could consider something which uses your experience or skills or something which you have previously done as a hobby. As well as the organisations listed in this information (see under heading Who can give further advice) you may be able to get ideas by looking at books and leaflets in the local library or job centre.
Training
Training in either practical or management skills may be necessary. Training is available from a variety of sources such as courses run by the organisations listed in this information (see under heading Who can give further advice), evening classes at local colleges, books.
See Government employment schemes|.
How to trade
If you are considering self-employment, you will need to discuss with one of the organisations listed under heading Who can give further advice the different ways of trading and which would be most appropriate for your business. The business could take one of three legal forms:-
a sole trader. This is the simplest way of starting a business
a partnership. This is similar to a sole trader except that two or more people run the business
a limited company. This gives the business a completely separate identity from the people who run the business. It is more complicated to set up.
In addition to one of the above legal forms, self-employment can also involve one of the following trading practices:-
a co-operative. This is a business which is collectively owned and controlled by the people who work in it. At least two people must be involved
a franchise. A franchise is an agreement which allows the person buying the franchise the right to run a branch of a business that someone else has set up.
Finance
As a self-employed person, you will need enough money to live on as well as money to start up the business and keep it going. You may be able to get money from the following sources:-
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family or friends
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grants from charities or trusts
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loans from banks and building societies.
Book-keeping and accounting
It is extremely important that accurate and detailed records of the business are kept. You may be able to keep your own books or employ a bookkeeper or accountant, but if you are trading as a limited company you will need the help of an accountant.
Income tax
As a self employed person, you will be taxed differently to an employee. You will be responsible for paying income tax on your earnings and will usually need the help of an accountant. There are special tax reliefs and allowances which self-employed people can claim. If you are newly self-employed, you should register with HM Revenue and Customs by calling the helpline for the Newly Self-Employed. The helpline number is: 08459 154515.
Value Added Tax
Value Added Tax (VAT) is a tax on goods and services which is paid to HM Revenue and Customs. Whether or not a self-employed person has to pay, and in some cases has the right to choose to pay, VAT depends on the type of business and how much the business sells.
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Premises
You could consider trading in the following ways:-
From Home.
This has the advantage of low costs but you will need to make sure that the tenancy agreement, mortgage agreement or title deeds of the property do not place any restrictions on business use.
You may also need to get local authority planning permission
From premises you have bought or rented.
You should consider how much space you need as well as heating, lighting and ventilation requirements. You need to make sure the property has been approved for business use. Planning permission may also be necessary. If you are considering buying or renting premises you should see a solicitor
From a market stall.
The local authority will have details of where and when these are available and how much local markets charge
At craft fairs.
The local authority will be able to give details of where and when these are held.
Business Rates
Business rates have to be paid to the local authority on most business premises. These include shops, offices, warehouses and factories. In some cases, for example, in a property which contains a shop and a flat, or if you work from home, you may have to pay both business rates and council tax.
Some types of business premises are exempt from rates, for example, agricultural land.
For more information about business rates in Wales, contact your local council.
Health and safety
As a self-employed person you have a duty to make sure that your business premises and working environment meet health and safety requirements. Further information about health and safety requirements is available from the local health and safety executive or environmental health department of the local authority.
Insurance
Depending on the business and how you trade, you will be required by law to take out certain types of insurance. Other types of insurance are not compulsory but it is important to consider which ones are appropriate. The types of insurance you may need are:-
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employer's liability insurance. If you employ other people you must have this insurance. It provides cover for claims made by employees who are injured or become ill as a result of their employment
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vehicles insurance. Vehicles used for business purposes must be insured even if already insured for private use
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public liability insurance. This provides cover against claims by members of the public who have been injured or had property damaged as a result of carelessness at work by you or your employees
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premises insurance. Insurance will be necessary for the premises you work from, even if you work from home and there is already a policy. This is because the insurance will usually only cover residential use
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contents, stock and materials insurance. This insurance will be necessary to cover the replacement costs of stock, materials and the contents of the premises even if is work is being done from home and there is already a home contents insurance policy
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health and accident insurance. These will pay a regular income or lump sum if you are unable to work because of an accident or sickness.
Pensions
As a self-employed person you will get state retirement pension if you have met the contribution conditions.
Employing other people
If you employ other people you will be responsible for paying wages, tax, national insurance contributions and Working Tax Credit where relevant. You will have to meet the requirements of employment law and health and safety regulations.
National insurance contributions
As a self-employed person you may have to pay national insurance contributions for yourself and any employees. Whether you have to pay contributions for yourself, and if so what type, depends on how much you earn. Whether contributions have to be paid for any employees depends on what they earn. The payment of contributions will affect the benefits a person can claim in the future. You can contact a telephone helpline for information about national insurance contributions, statutory sick pay and statutory maternity pay on 0845 714 3143.
Benefits and Tax Credits
As a self-employed person you may be able to claim benefits or tax credits, depending on your income and other circumstances.
If you are self-employed you should consult an experienced adviser, for example, a Citizens Advice Bureau, for help in working out how much benefit or tax credit you are entitled to. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Trading names and licences
You need to consider whether you wish to use a trading name for the business. If so, there are restrictions on the names businesses can use. You may also need to get a licence depending on the type of business.
Who can give further advice
Banks
All the big banks have sections which specialise in helping small businesses. Most produce free leaflets.
Chambers of Commerce
Chambers of Commerce are local organisations which give information, advice and training to businesses in their town or area. Most give free advice to members, but charge for services to non-members. Some Chambers of Commerce serve particular ethnic minorities.
Small Business Service
The Small Business Service is a government agency providing general information on starting up a small business. It operates the Business Link National Contact Centre, which is a website designed to deliver information and advice to small businesses in the UK (see below). It also operates a helpline for small businesses:-
Tel: 0845 600 9006 (8am-8pm, Mon-Fri)
Minicom: 0845 606 2666
Website: www.businesslink.gov.uk|
The Small Business Service operates a network of local providers throughout the UK, which can provide independent and impartial advice. These are provided through Business Link in England, Business Eye in Wales, Small Business Gateways in Lowland Scotland, Business Information Sources in Highland Scotland and Invest NI for Northern Ireland.
Local enterprise agencies (England, Wales and Northern Ireland only
Local enterprise agencies give free general advice and support to small businesses. Training courses are also available, which are often free. Details of local enterprise agencies are available from the National Federation of Enterprise Agencies - see below.
National Federation of Enterprise Agencies (England and Wales only)
12 Stephenson Court
Fraser Road
Priory Business Park
Bedford
MK44 3WH
Tel: 01234 831 623
Fax: 01234 831 625
E-mail: enquiries@nfea.com|
Website (general): www.nfea.com|
Website (for business advice): www.smallbusinessadvice.org.uk|
NFEA is a network of local enterprise agencies in England and Wales. Its general website has details of how to find your nearest local enterprise agency
Local authority economic development units
Some local councils have set up units which give advice and help to businesses in their area. Some have bilingual advisers and are intended particularly to help ethnic minority small businesses. They tend to be mainly in inner-city areas. The advisers are employed by the council and will usually have a business background or related skill, such as banking or accountancy.
National Federation of Small Businesses
England and Wales
Sir Frank Whittle Way
Blackpool Business Park
Blackpool
Lancs.
FY4 2FE
Tel: 01253 336 000
Fax: 01253 348 046
Website: www.fsb.org.uk|
This section has been extracted from Advice Guide - CitizensAdvice Bureau|