Once you’ve decided to take the leap and do your own thing, the next big step is to register as self-employed. As mentioned elsewhere, there are a few different ways you can go about registering for self-employment. The three options are as follows:
- Functioning as a sole trader
- Setting up a business partnership
- Starting a limited company
As you might expect, there are advantages and disadvantages to each route. Let’s look at a few of them, shall we?
Sole Trader Registration
- Things are, relatively speaking, easier when registering as a self employed sole trader; there’s less paperwork than the other routes, and you can take care of much of it yourself.
- Information about your business doesn’t need to be made public, so it can’t be obtained from Companies House or services like Duedil.
- Accounting fees, if you employ an accountant, are likely to be cheaper as there’s less information for them to process.
- You’re tied very closely to your business; this may be fine if you’re marketing yourself as…well, yourself, but it means it can be difficult to untangle the business from a product or service you’re hoping to sell on to someone.
- The more partners involved, the more startup capital will (generally…) be available to get the business rolling!
- Having multiple people involved in the business means more input into decision making and brainstorming…which probably functions as both an advantage and a disadvantage, depending on the scenario!
- The clue’s in the name; make sure you believe in your partner, as you might find yourself feeling tied down if they fail to perform.
- It would be lovely to think that partnering up reduces the amount of paperwork you need to submit to HMRC but, alas, it’s not the case! As well as individual parties submitting the relevant documentation, a ‘lead partner’ must also submit information on behalf of the partnership as a whole.
- Registering yourself as a self employed Limited Company has it’s advantages. Should the worst happen and your business fails, operating as a Limited Company means that your personal belongings are off-limits, i.e. they can’t be seized to cover losses.
- You get to call yourself a Company Director! Seems like a bit of a flippant point but, actually, bigger businesses will be more comfortable dealing with Limited Companies, and there’s the added bonus of being able to establish a different credit rating for your business as opposed to your individual credit rating.
- Because you’ll be paying Corporation Tax of 20% (provided your profits are less than £300,000), you can pay your salary with a low wage (lowering PAYE and National Insurance contributions) and dividends. Short version? You get to keep more of the money you make!
- There’s a fair bit more paperwork involved, which means you may need to pay your accountant more!
- Information about yourself, the company’s directors, accounts, annual returns etc will be publicly accessible through Companies House.
When it comes to registering for self-employment, there’s no right or wrong answer when it comes to path you take when forming your business. Think about it, check out some more information about self-employment registration on GOV.UK, and don’t rush your decision!