What to know before you go self-employed

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Becoming self-employed is a dream for many – the freedom to build something of your own, set your own hours and follow your passion.

But before you take the leap, it’s important to understand what type of self-employment is right for you, and what to be mindful of along the way.

Understanding the different types of self-employment

There’s no one-size-fits-all approach to running your own business. Each option has its benefits and responsibilities – here’s a quick overview to help you make an informed choice.

Sole trader

A sole trader business directly links you to your work. You keep all profits after tax, but you’re personally responsible for any debts the business takes on.

This setup is best suited to businesses that carry less financial risk – such as freelancers, tradespeople or small retailers.

Partnership

If you’d rather not go it alone, a partnership could be ideal. Costs, debts and day-to-day expenses are shared among all partners, as are profits.

Each partner then pays personal tax on their share.

Limited company

A limited company is a separate legal entity from its owner(s), which means you’re not personally liable for business debts (unless the law is broken) or you have given a personal guarantee to pay if the business doesn’t.

The company pays corporation tax on its profits, and directors or shareholders can draw income from what’s left.

Limited Liability Partnership (LLP)

In an LLP, partners aren’t personally responsible for the business’s debts. Their liability is limited to the amount they’ve invested in the company.

The realities of self-employment

Running your own business can be rewarding – but it can also bring challenges. A recent study found that[1] 40% of self-employed workers would return to employment due to financial insecurity or the impact on their wellbeing.

Common challenges[2] include:

Irregular income
Building a reliable client base
Difficulty budgeting
Lack of structured support
Complex tax responsibilities

Finding support when you work for yourself

Self-employment doesn’t mean being on your own. There’s help available to get you started and keep your business moving forward:

Start-up period: You may be eligible for a 12–month start-up period, during which you don’t need to look for other work.
Start-up loans: Unsecured loans of £500 – £250,000 to start or grow your business.
Benefits: Depending on your circumstances, you may be able to access Universal Credit and Employment and Support Allowance while self-employed.