How to Go Self-Employed: Your Complete Guide

Wondering how to go self-employed? You’re in the right place. Here, we set out the steps you need to take to become your own boss.

Ready? Let’s dive in. 

How do I start my self-employment?

Before going self-employed, there are five things you should do first: 

Make a business plan and set a budgetRegister with HMRC Understand your recordkeeping responsibilitiesSet up a business bank accountGet insured

Let’s take a look at each of these in a little more detail. 

1. Plan and budget

You’ve probably heard the old adage, “if you fail to plan, you are planning to fail.” So, before taking a leap into the world of self-employment, make sure you’ve written a solid business plan for your first year of trading. 

This will help you develop your ideas and set out your goals for the short and long term.

Furthermore, a business plan can be used to pursue funding from outside sources, such as small business grants, bank loans, or investors. 

And in addition to your plan, you’ll also need to consider your budget. What can you afford to invest to get your business off the ground? Do you need to rent premises? Purchase equipment? Set up and host a website? 

Plus, you’ll need to know how much you have to make each month to cover your personal expenses, such as rent or mortgage payments, utility bills, childcare, and food. 

2. Register as self-employed with HMRC

When you’re self-employed, you don’t get taxed through PAYE (pay as you earn). Instead, you must pay your income tax and National Insurance contributions (NIC) via Self Assessment each year. And that means you need to register as self-employed with HMRC.

How do I tell HMRC that I am self-employed? 

The good news is, registering as self-employed is pretty straightforward. Simply visit the HMRC website and do the following: 

Create a Government Gateway Account. This is the account you’ll use to manage your taxes online. You’ll receive a unique 12-digit user ID and be asked to create a password.
Next, log in using your user ID and password.
Select “Add a tax” and then “Self Assessment (including Class 2 National Insurance contributions)”.
Complete the registration by entering your personal information, the date you started your self-employment, and details about the type of self-employed work you do.
HMRC will then review your application. All being well, you’ll receive your Unique Tax Reference (UTR) number in the post within ten working days. This is a 10-digit number that proves you’re registered as self-employed. You’ll need it whenever you speak to HMRC, manage your account online, and submit your tax returns.
Finally, enter your Government Gateway activation code. This is part of the verification process for your HMRC online account. It can take up to 28 days to arrive, and it will expire, so enter it as soon as you receive it.  

Once you’ve completed those steps, you’ll be officially registered as self-employed. 

Do I need to register as self-employed straight away?

No, you don’t need to register your self-employment right away. However, HMRC suggests that you do it as soon as possible. 

How long do I have to tell HMRC I am self-employed? 

There’s a deadline for declaring self-employment. You must do it by the Self Assessment deadline. This is 5 October following the tax year in which your self-employment started. The tax year runs from 6 April one year to 5 April the next.

So, for example, if you started a self-employed business in June 2021, that would be during the 2021/22 tax year (from 6 April 2021 to 5 April 2022). So you’d need to have told HMRC by 5 October 2022 that you’re self-employed, otherwise you could end up being penalised.  

3. Get to grips with your self-employed admin 

Once you’ve registered as self-employed, it’s important to understand your ongoing recordkeeping responsibilities. For the duration of your self-employment, you must:

Keep accurate records, including tracking your income and expenses, and filing any correspondence with HMRC. You’ll typically have to retain records for up to five years.
Complete your Self Assessment tax return online by no later than 31 January each year. If you miss the deadline, you could end up paying a penalty.
Pay any tax you owe to HMRC by 31 January and 31 July each year. Along with your tax bill, you must also make “payments on account” twice a year. These are advance payments towards your next year’s tax. Each payment is half your previous year’s tax bill. The first payment on account is made in January, and the second in July. 

How to go self-employed on Universal Credit

Self-employed recordkeeping is particularly important if you’re currently claiming Universal Credit (UC). 

UC is a monthly payment from the government to help with your living costs. You can continue to claim UC while self-employed, but only if you’re considered “gainfully self-employed” — that is, self-employment is your main source of income, and it provides regular work.

Your Universal Credit payment is based on any self-employed earnings you report at the end of each monthly assessment period. To make sure you can claim what you’re owed each month, you’ll need to carefully track your income and expenses.

You can read more about self-employment and Universal Income on the gov.uk website.

4. Set up a dedicated business bank account

The type of self-employed business you set up (more on that below) will determine whether or not you need a separate business bank account.

If you’re a sole trader or in a partnership, you don’t have to use a business bank account. A personal bank account will suffice. However, it’s often a good idea to keep your personal and business finances separate, as this will make your recordkeeping easier in the long run.
On the other hand, if you’re running a limited company, you must have a business bank account for the company. A limited company is considered a separate legal entity. That means the money the company makes belongs to the company in the first instance.

What are the different types of self-employment?

There are a few different types of self-employment: 

You can be a sole trader (the one and only owner of your business); In a partnership (where you and a partner or partners share the responsibility for the business);Or the director of a limited company (which has its own distinct legal identity, separate from the people that own and run it).  

We dig into the pros, cons, and tax implications of the two most popular business structures here: Sole Trader vs Limited Company: All the Info

5. Put the right insurance in place

Finally, the freedom offered by self-employment is not without its risks. To guard against this, it’s a good idea to make sure you have the right insurance in place. 

The type of insurance you require will vary depending on the kind of work you do and whether you have employees. Some common types of insurance taken out by self-employed people include:

Quickfire summary: How do I become self-employed?

To recap, becoming self-employed takes skill and bravery. But if you want to join the almost 4.5 million people in the UK who’ve taken the plunge and become their own boss, you’ll also need to have a plan, budget carefully, get organised, and protect yourself from risk.  

Get a quote for your self-employed business insurance needs here.

Also read:
How to Register as Self-Employed in the UK 
A Guide to Small Business Grants in the UK 
Self-employed? What business insurance do you need? 
Sole Trader vs Limited Company: All the Info