Skip to content
Home » 10 steps to take when you become self employed

10 steps to take when you become self employed

One of the main benefits of becoming self-employed is the ease with which you can get started in business.

You can even become a sole trader (another term for self-employed) while working for someone else.

So you can test the water and see whether working for yourself suits you.

Here are ten steps to take when you become self employed for the first time.

1.  Decide to go self employed

The first big decision you make when starting a business is whether to go self employed or to set up a limited company.

Most businesses are run as sole traderships or partnerships. In fact, there are over 4 million sole traders in the UK.

Once you decide that self employment is the best route for you, then it’s time to look at the next steps.

2. Choose a name for your new business

Choose a name that reflects both what you do and how you’d like to appear to the world. You might want to include what you do in your name, or the geographic location.

Unlike a limited company, there is no central register of sole traders, nor the same naming rules which apply to companies.

Tide Business Bank Account - £50 Cashback!

Simply open an account to qualify + 12 months of free transfers for our visitors! Read our Tide review

However, we recommend you search the Companies House register – even as a sole trader – to make sure there won’t be a potential conflict with a limited company name.

Also – if possible – search for domain names at the same time. In a perfect world, you will be able to secure a unique business and domain name at the same time.

Don’t forget that your chosen business name will appear on all of your official paperwork, so take your time.

3. Register as self employed with HMRC

When you set up as a sole trader (or as a partner in a partnership), you are responsible for paying income tax and National Insurance (NICs) on your business profits.

You have to register as self-employed with HMRC.

FreeAgent - Brilliant Accounting Software

FreeAgent accounting software for sole traders and limited companies. 55% off first 6 months + 30-Day Free Trial.

You can do this at any time up to the 5th October of your second tax year in business.

Tax years run from 6th April to 5th April of the following year.

For example – if you start trading in January 2024, you need to register with HMRC by 5th October 2024.

To find out more, read our guide on how to register as self-employed.

4. Income tax – Self-assessment tax return

As a self employed person, you need to submit an annual Self Assessment form by January 31st the year after the tax year in question. When you complete your return, you must also pay any tax and NICs due by the same deadline.

In practice, many small business owners hire an accountant to prepare accounts and calculate the amount of tax to pay.

Find out more about self employed tax here:

5. National Insurance Contributions (NICs) for self employed

Once you start operating as self employed, you need to pay your own National Insurance contributions (NICs).

Class 2 NICs

As a sole trader, you pay Class 2 NICs on your income, which is £3.45 a week for the 2023/4 tax year.

If the profits from self-employment are below £12,570 (the small profits limit), you do not have to pay Class 2 NI contributions at all.

Class 4 NICs

Self-employed workers also pay Class 4 NICs. For the 2023/24 tax year, this is 9% on any annual profits made between £12,570 and £50,270, and 2% on any profits above £50,270.

Check out our new 2023/24 Sole Trader Tax Calculator.

For the latest NIC rates for sole traders, check the GOV.UK site here.

6. Work out whether you need to register for VAT

As of April 2023, if your business has an annual turnover of £85,000 or more, you must register for VAT.

At any stage of the business cycle, if it looks like you are going to hit the annual VAT threshold over the coming 12 months, you must also register.

The threshold usually rises by a few thousand each year. Make sure to inform HMRC within 30 days, or risk paying a fine.

In many cases, you might decide to register for VAT even if you don’t need to. Having a VAT number can give you more credibility, and you’ll be able to claim the VAT back on eligible purchases you make.

You might also consider the flat rate VAT scheme, which makes accounting for VAT much simpler. Your accountant will be able to advise you if you’d be better off on the Flat Rate or standard VAT scheme.

You’ll find more useful information in our VAT section.

7. Do you need any specific licences or permits for your business?

If you’re in some trades or professions, you might need to hold specific licences or permits to carry out your business.

For example, you need to be on the Gas Safe Register to work on gas fittings or gas storage vessels in the UK.

You need permission for a multitude of activities from working as a street trader, or processing personal data.

Use this handy government tool which contains information on over 400 licences, permits and certifications.

8. Open a business bank account

As a sole trader, although your business income is taxed alongside your personal tax, it is vital to keep your business records and finances separate from your personal affairs.

For this reason, we recommend you open a separate business bank account.

If you prefer to bank with a big name bank, most of the high street banks offer 12-18 months of free business banking for new businesses. After a trial period, banks typically charge around £10/month, plus fees if you process a lot of transactions.

Some challenger banks – such as Tide – now offer completely free business accounts. If most of your banking requirements can be done online, these can be a particularly good option.

You can typically set up your new account as “John Foster trading as, or T/A, your Business Name”. Having your business name on customer invoices gives a more professional look.

If you expect to keep cash for some time, why not open a business savings account?  You can earn interest on your money, especially as interest rates have finally risen about 0% for the first time in a decade.

Special Banking Offer for Bytestart users

Get a £50 bonus simply for opening a new bank account via Tide – plus free transfers for a year! There really are no catches. Find out more.

9. Make sure you are properly insured

As a business owner, you must comply with legal (or contractual) requirements to have certain insurance policies in place.

The type of insurance you need to buy will depend on the nature of your business and the industry you operate in. In addition to mandatory policies, you may also want to consider optional insurance coverages for added peace of mind.

If you employ another person, even if it is only an occasional part-timer, you are legally required to take out employers liability insurance.

You need at least £5 million of cover (which is standard) and you must display your certificate of insurance where employees can easily read it. You can expect a very heavy fine for failing to have a policy in place.

Most small businesses take out public liability insurance, especially if customers visit you on your premises or if you undertake work on their property.

It will protect you if a third party injures themselves, or damage is caused to property because of your business activities.

If you provide any type of professional service or advice to clients, you should also consider taking out a professional indemnity policy. It will cover you if a client sues you because they are unhappy with the work you have done, or advice you have given.

ByteStart’s complete guide to sole trader insurance will give you more help to work out what other insurance policies you might want to consider.

Recommended insurance provider for the self-employed

Hundreds of ByteStart visitors have taken out Qdos self employed insurance over the past 15+ years. Public liability cover, for example, costs from just £4.58 per month!

10. Keep accurate and up-to-date financial records

To be a successful sole trader, you must keep on top of your books.

You are obliged to keep clear and accurate records of all your business transactions from the start.

Keeping such records will ensure that you keep the tax authorities happy. It is much easier to operate your business if you are organised and keep your paperwork constantly updated.

Our beginner’s guide to setting up accounts for a sole trader will help you to get to grips with your accounts.

Online accounting software – such as the excellent FreeAgent – is now used by many small businesses to help simplify their accounting. Your accountant can easily log in and complete their side of the bargain.

Read our guide – how to choose the best online accounting system for your business – for more information.