How to start a business or become self-employed

Working for yourself can be very rewarding. It means you can:

• do something that interests you, or that you’re passionate about
• choose your own hours
• work around other commitments, such as your children
• have more control over your income.

But there are also some downsides, including:

• working long hours and at weekends
• dealing with an irregular income
• having to do your own bookkeeping and tax return
• limited or no access to employment benefits, such as paid leave.

Fortunately, when it comes to self-employment, there’s plenty of help and advice out there.

Government-backed advice services around the UK will help you with everything from creating a business plan and researching the market, to finding finance and recruiting staff.

So, depending on where you live, they should be your first port of call.

• England – GOV.UK
• Wales – Business Wales
• Scotland – Business GatewayOpens in a new window
• Northern Ireland – Invest Northern Ireland

Are you thinking about starting your own business or becoming self-employed? Then one of the first things you’ll need to think about is your business structure.

This is the simplest business structure. You’ll run your own business as an individual and keep any after-tax profits.

However, your personal and business assets aren’t considered separate. This means you’re personally responsible for debts associated with the business. You can reduce this problem through insurance, or by choosing one of the other business structures mentioned below.

But don’t be put off by the idea of being a business. A sole trader is just that – one person, you, working for themselves. You don’t need to be a shop owner. You could be a taxi driver or hairdresser. Becoming a business is just the official term.

To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs (HMRC).

A partnership is when you go into business with one or more other people and have shared responsibility for the business.

It’s important you draw up a partnership agreement, so everyone involved knows how the profits are split up.

Business debts are dealt with under what’s known as Joint and Several Liability. This means all members of the partnership are responsible for the debts. This is either in full, or individually, depending on how much they can afford to repay.

All partners will need to submit a Self Assessment tax return for their own share of the profits. And a nominated partner will have to submit a partnership Self Assessment for the business.

A private limited company (Ltd) is its own legal entity and is completely separate from the people owning and running it. It will need to be registered (or incorporated) with Companies House, and must have a suitable name and address.

The company will have a director (usually the person who started the business) who is legally responsible for running the company. And at least one shareholder (also known as a member).

A Ltd company will have to pay Corporation Tax on any profits. And the after-tax profits are divided up among the shareholders.

The company will need to submit its annual accounts to Companies House and a tax return to HMRC.

The director will also need to fill in a Self Assessment tax return. But they’ll only pay tax on the money they earned by running the business, not the profits.

While these are the easiest to set-up and understand, there are some other options.

A limited partnership must have at least one general partner and one limited partner.

The general partner is responsible for running the business and the partnerships’ debts. The limited partner is only liable for the amount they originally invested in the business.

LLPs are a hybrid of a partnership and a limited company.

Like a partnership, it can be set up by two or more people. But like a Ltd company it must:

• be incorporated with Companies House
• have a suitable name and address
• Be legally separate from the individuals running it.

It must also have at least two shareholders (or members) – and each shareholder pays tax on their share of the profits.

Partners’ liability for the business debts are limited to the amount of money they invested.

Are you interested in becoming self-employed or starting your own business, but don’t want to start from scratch? Then a franchise might be worth considering.

A franchise is where you buy a licence from a business owner to use an existing business idea and brand name.

Some well-known franchises include American fast food chains McDonald’s, Burger King and KFC. But there are thousands of other franchise opportunities available, from global names to local organisations.

The start-up costs can be quite high. But you will be buying into an established brand and the deal should include:

• training and guidance on setting-up, and
• running and growing your franchise.

But be aware of scams. Check the brand is established, and that the franchiser is marketing the brand actively.

When you’re thinking about becoming self-employed or setting up a business, there are a lot of things you need to consider

This isn’t an exhaustive list, but it does cover some of the major areas you’ll need to think about.

First, and possibly most importantly, you need to make a budget.

You need to think about all the costs involved to get your business off the ground and operational. These might include:

• renting business premises or shop front, and costs associated with it – including electricity and internet access
• buying or hiring vehicle(s), and the cost of fuel and maintenance
• equipment including tools, computers and phones
• setting up and hosting a website
• advertising and marketing materials
• staff.

Obviously, you might not need all these:

• Many profitable businesses don’t need physical premises
• You might already have a lot of the equipment you need
• Staff might not be necessary until the business is more established.

However, you’ll also need to think about your personal costs, such as rent, mortgage, utility bills, childcare and food.

You’ll then need to think about how much of your own money you can afford to invest. This will help you find out if you will need to look for investment or a business loan.

There are two main reasons for writing a business plan:

1. For business reasons – so you can set out your objectives, develop ideas and plan for the short and medium term.
2. To present to people outside your business – usually to banks or potential investors if you’re looking to raise money.

Regardless of who you’re presenting it to, it’s important to be realistic and honest about your costs and earning potential.

If it will be seen by people outside your business, so make sure:

• it looks professional        
• it’s well structured
• It contains all the information people would expect to see.

If you’re thinking of setting up your own business, you’ll also need to register for Self Assessment to pay your own taxes.

You pay tax and National Insurance on your self-employed earnings in arrears. This means any tax you owe on money earned in the 2024/25 tax year is not due until January 2026.

This means you’ll need to plan how you’ll pay what could be a substantial bill.

The good news is, you’ll have a good idea about how much tax you owe at the end of the previous tax year. This gives you nine months to prepare.

If you’re setting up a private limited company (Ltd) or limited liability partnership, you’ll also need to pay Corporation Tax on your profits.

If you had a turnover of more than £90,000 in the year 2024/25, you’ll need to keep digital tax records and submit VAT returns using HMRC’s Making Tax Digital system. But some businesses might benefit from registering, even with a turnover below this.

Find out more about making tax digitalOpens in a new window on GOV.UK

If you’re VAT registered, you’ll need to charge VAT on the goods and services you supply. 

However, you can claim back VAT you pay for goods or services relating to your business.

Do you have a combined annual turnover of less than £150,000 and are a sole trader or in a partnership? Then you can use cash basis accounting, rather than traditional accounting.

With traditional accounting, you pay tax and claim expenses based on the invoice or billing date.

If you choose to use cash basis accounting, you pay tax and claim expenses based on when the money leaves or enters your account.

Why would this matter? Well, if you’re getting paid for work on a monthly basis, there’s probably very little difference. But, if you agree to and invoice someone for work several months before you get paid, it can change the year you pay tax on that income.

For example, if you use traditional accounting and invoiced someone in March 2025, but didn’t get paid until July 2025, you have to declare this income on your 2024/25 tax return and pay the tax on it by January 2026.

If you use cash basis, you would have to declare this income in the tax year you got paid, which is 2025/26. This means you wouldn’t pay tax on this until January 2027.

However, there are some downsides to cash basis accounting. For example, you can’t offset losses against your taxable income, or claim for more than £500 in interest costs So you might want to get advice about what’s best for you and your business.

This is a difficult question, and there is no definitive answer. If your business is new and you have a simple financial situation, you might want to see if you can manage by yourself, at least in the short term.

However, hiring an accountant can be a good thing as most can provide advice on tax planning and offsetting expenses against income. It also doesn’t need to be expensive.

If you’re looking at hiring an account, make sure they’re a member of a relevant trade body, such as:

• Institute of Financial Accountants (IFA)
• Institute of Chartered Accountants in England and Wales (ICAEW)

Accountants might also be registered with the Financial Conduct Authority (FCA). However, some accountants are exempt and don’t need to be authorised by the FCA when engaged in some regulated activities.

If you’re a sole trader or in a partnership, you don’t need to have a business bank account. But, you might find it useful to keep your business and personal finances separate, particularly if you’re in a partnership.

If you’re running a limited company, you do need to have a business bank account.

Like personal accounts, business bank accounts have many different features. You can compare different business bank accounts at:

• MoneySuperMarket
• GoCompare
• Business Comparison

Some suppliers are able to submit parts of your tax return automatically. If you want some help with your record and bookkeeping, you might want to look at some of the commercial software suppliers listed on the HMRC sectionOpens in a new window on GOV.UK.

If you’re running your own business, it’s important to make sure you’re insured.

You’ll need some kind of business cover, such as public liability and equipment insurance. But there’s a wide range of products available.

As you no longer have an employer to rely on for sickness cover or health insurance, you might also want to consider a personal insurance policy.

If you’re self-employed and on a low income, you might be able to claim benefits, including Universal Credit.