Rising unemployment has resulted in more people setting up their own businesses, particularly as the odds of finding other work are currently so slim.The average job advertised in the UK now attracts 23 applicants, according to a recent study of around 4million unemployed Britons.
However, while being your own boss can seem the best way to make ends meet, there are certain things you should know before going it alone. Our guide to self-employment should help improve your chances of success – whatever kind of business you choose to run.
It is vital to get your marketing right when setting up on your own. And finding the right name for your business is the first important decision you need to make.
Your chances of attracting customers are greater if you keep it simple and to the point. So, if you are an electrician called Gary Sharp living in Bolton, then call your business Bolton Electricians rather than Gary Sharp Electrical, for example.
When you become self-employed, you must also let HM Revenue & Customs know. You can contact them online or over the phone, but you must register as self-employed within three months. Otherwise you risk a fine.
The change in your circumstances does not necessarily mean that you need to pay an accountant to manage your affairs, especially if you are not expecting to earn a lot initially.
User-friendly accounting software could prove a worthwhile investment, though. It is also a good idea to set aside at least an hour each week to do your accounts so that you stay on top of your admin as you will need to fill in a tax return every year.
You will also need to set yourself up with a business bank account as it is a good idea to keep your personal and business finances as separate entities. It is well worth visiting MoneySupermarket’s business current accounts page where you can compare a range of bank accounts for start-up businesses and ensure you get the right account for your business needs.
Working from home
There are both advantages and disadvantages to working from home. It can, for example, prove hard to distance yourself from your home life and concentrate on your business, which is why it is often a good idea to have a separate room or area to work in.
Other things to consider include whether you need to apply for planning permission to change the nature of your home. You do not need to do this if you are simply going to be working alone at your computer, for example.
If you are likely to have a lot of visits from clients or will be using your home primarily as an office, however, then you may need to contact your local authority.
It is also a good idea to contact your home insurer to find out if you need to alter your policy, especially if you are buying expensive equipment as a result of going self-employed.
Pete Harrison, insurance expert at MoneySupermarket said: “It is very important to make sure that you are properly insured for the equipment that you need for your work. If not, a break in or burglary could dash your hopes of success for good.”
It is also worth looking into business insurance, which can offer various types of cover including public liability and employers’ liability. The latter is obligatory if you plan to take on staff, even on a short-term basis.
Visit MoneySupermarket's insurance channel for the cheapest quotes.
Once you are registered as self-employed, you will need to start paying Class 2 NI contributions, which are £2.50 a week. The only exceptions to this are if you expect to earn less than £5,315 a year or if you are already making the payments.
Even though you will not pay any income tax in the first year, it is also crucial to start saving up for your first tax bill. Accountants recommend saving around a third of any profits over and above the current personal allowance of £7,457.
Finally, if you expect to have a turnover of at least £73,000, then the current rules state that you must also register for VAT. If your clients are going to be businesses, then some people feel that it is worth registering to look more professional even if you do not have this level of turnover.
If your clients are going to be consumers, however, you should avoid registering if possible as it will push your prices up by 20%.
Taking it to the next level
If you are planning to set up a website, then it is crucial to make it as relevant as possible. As with the name of your business, you want people to know what you offer and where, as well as how they can contact you.
And whether you set up a website yourself or pay a web developer, it is worth avoiding fancy graphics to ensure that potential clients searching the web using a smartphone can access your information quickly and easily.
If you have a business premises, then it is also a good idea to shop around for the cheapest business energy deal.
Scott Byrom, energy expert at MoneySupermarket said: “Any small business owner knows how important it is to keep overheads to a minimum.
"And taking a few minutes to ensure you are paying as little as possible for your gas and electricity could make a big difference.”
Visit our energy channel for a tailor-made quote.
Please note: Any rates or deals mentioned in this article were available at the time of writing.