What are the first steps to becoming self-employed?

Start by researching your market, writing a business plan, choosing a business structure, and registering with HMRC or Companies House.

Should I be a sole trader or start a limited company?

It depends on your goals. Sole traders have less admin but are personally liable. A limited company offers limited liability and tax planning options but has more reporting requirements.

What taxes do self-employed people pay in the UK?

Sole traders pay Income Tax and National Insurance. If your turnover exceeds the threshold, you may also need to register for VAT. Limited companies pay Corporation Tax.

Do I need a business bank account?

If you run a limited company, yes. For sole traders, it's not required by law but is strongly recommended to separate personal and business finances.

Do I need insurance to be self-employed?

It depends on your business type. Many self-employed professionals need public liability, professional indemnity, or employers' liability insurance.

Can I claim expenses as a self-employed person?

Yes, allowable expenses include costs like travel, office supplies, professional fees, and a portion of home office costs if working from home.

How to Start a Business or Become Self-Employed (UK Guide)

Self Employed

4 Aug

Written By The Online Accountants

Thinking of starting your own business or becoming self-employed? Whether you're launching a side hustle, freelancing, or setting up a limited company, taking the right first steps can make all the difference. This complete guide explains what to do, when to do it, and how to stay compliant — without the jargon.

A self employed cat wearing a work suit with a tool belt around his waist.

Is Self-Employment Right for You?

Being your own boss offers flexibility, creative control and the opportunity to earn more — but it's not for everyone. Ask yourself:

Are you self-motivated and comfortable with risk?
Can you manage finances, marketing, and legal responsibilities?
Do you have a product or service that solves a problem?

💡 Tip: Speak to a business mentor or accountant to test your idea before taking the plunge.

Business Structures Explained

Choosing the right legal structure affects how you pay tax, your personal liability, and what records you must keep.

  
      Structure
      Description
      Pros
      Cons
    

  
      Sole Trader
      You run the business as an individual.
      Simple, low cost, minimal admin.
      You’re personally liable for debts.
    

      Limited Company
      A separate legal entity.
      Limited liability, tax planning benefits.
      More admin, Companies House filings.
    

      Partnership
      Shared ownership between two or more people.
      Shared responsibility.
      Joint liability for business debts.
    

Structure	Description	Pros	Cons
Sole Trader	You run the business as an individual.	Simple, low cost, minimal admin.	You’re personally liable for debts.
Limited Company	A separate legal entity.	Limited liability, tax planning benefits.	More admin, Companies House filings.
Partnership	Shared ownership between two or more people.	Shared responsibility.	Joint liability for business debts.

Step-by-Step: How to Start Your Business

Research Your Market
Identify your ideal customer, competitors, and pricing strategy.
Write a Business Plan
Outline your goals, operations, finances, and marketing.
Choose a Business Name
Check Companies House and domain availability.
Decide on a Structure
(Sole trader, limited company, partnership).
Register with HMRC or Companies House
Depending on your chosen structure.
Set Up a Business Bank Account
Keeps your business and personal finances separate.
Sort Out Insurance, Licences, and Permits
Essential for certain industries (e.g. food, childcare, construction).
Start Trading and Promote Your Business
Build an online presence and network in your industry.

Registering with HMRC

Sole Traders: Must register for Self Assessment by 5 October in your business's second tax year.
Limited Companies: Register with Companies House and for Corporation Tax within 3 months of trading.
VAT Registration: Required if your turnover exceeds £90,000 (2025/26 threshold).

🔗 Register as a sole trader
🔗 Set up a limited company

See Our Self Employed Accounts Plans

Understanding Tax and National Insurance

  
      Type
      Sole Trader
      Limited Company
    
      Income Tax
      20–45% depending on profit.
      Directors pay tax on salary/dividends.
    
      National Insurance
      Class 2 and Class 4.
      Directors pay Class 1 NI via PAYE.
    
      VAT
      If turnover exceeds threshold.
      Same rules apply.
    
      Corporation Tax
      N/A
      19% or 25% depending on profits.

Type	Sole Trader	Limited Company
Income Tax	20–45% depending on profit.	Directors pay tax on salary/dividends.
National Insurance	Class 2 and Class 4.	Directors pay Class 1 NI via PAYE.
VAT	If turnover exceeds threshold.	Same rules apply.
Corporation Tax	N/A	19% or 25% depending on profits.

💡 Tip: Keep 25–30% of your income aside for taxes if you're a sole trader.

Business Banking and Finances

Open a Business Bank Account (required for limited companies, recommended for sole traders).
Use Accounting Software like FreeAgent, Xero or Sage to track income and expenses.
Keep Digital Records — this will become mandatory under Making Tax Digital rules.

Insurance, Licences and Legal Requirements

Depending on your industry, you may need:

Public Liability Insurance
Professional Indemnity Insurance
Employers’ Liability Insurance (if hiring staff)
Licences or Permits (e.g. for selling alcohol, childminding, or food services)

Check your local council or Gov.uk licence finder for specifics.

Marketing and Finding Clients

Build a Website and use SEO to attract organic traffic.
Create Social Media Accounts and post valuable content.
Register on Directories (Google Business Profile, Yell, Bark, etc.)
Network online and offline.

💡 Many new businesses get their first clients through word of mouth and referrals — so don’t underestimate your existing contacts.

Common Mistakes to Avoid

❌ Not registering with HMRC in time

❌ Mixing business and personal finances

❌ Ignoring tax and record-keeping obligations

❌ Underpricing your products or services

❌ Not marketing consistently

FAQs

1. What is the difference between self-employed and sole trader?

They’re effectively the same — “self-employed” describes your working status, while “sole trader” is the legal structure.

2. When do I need to register with HMRC?

By 5 October in your second tax year of trading if you’re a sole trader. Earlier is better to avoid missing deadlines.

3. Do I need an accountant?

Not legally, but a good accountant can help save tax, avoid penalties, and set up your business correctly from day one.

4. Can I start trading before registering?

Yes, but don’t delay too long — you must still register with HMRC by the required deadlines.

Final Thoughts

Starting a business or becoming self-employed in the UK is exciting — but requires planning, compliance, and confidence. With the right support, your venture can be both rewarding and sustainable.

Need help getting started? Speak to our expert accountants for tailored advice on business structure, registration, taxes, and more.

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The Online Accountants