How to Become Self-Employed

HMRC's Trading or Not video

This is your guide to setting up as self-employed. Here you will find information about the legal structures you can use, how to pay tax, budgeting your money and finding a workspace.

Legal structure

When you set up as self-employed you need to decide what legal structure you want for your business:
There are various structures to choose from, but the most common three are:

Sole trader

  • This is a simple structure to set up.
  • There are no charges and it is easy to get out of if you decide self-employment is not for you.
  • You will submit a self-assessment form each year and pay taxes each january.
  • The biggest issue with being a sole trader is that if your business fails, you will be personally liable.

A partnership

  • This is the best structure if you intend to work with other people. 
  • The partnership shares the profits and losses on an agreed basis.
  • You are jointly liable for any debts owed.
  • We recommend using a solicitor to help you draw up a partnership agreement which will cover things like intellectual property and other assets. Or you can become a Limited Liability Partnership (LLP), which has limited personal liability.

Limited company

  • A limited company (Ltd) is a separate legal entity set up through Companies House, and there are registration costs involved.
  • Being a company offers you more protection if your business fails
  • It often means tax advantages.
  • When creative businesses start to grow financially or employ people, they often change their status from sole trader status to Limited Company at that stage.
  • We recommend you contact a solicitor to draw up a “shareholders’ agreement”.
  • Another advantage of becoming a limited company is that you have more credibility than a sole trader.

Insurance

You are responsible for insuring your company, regardless of the structure.
As a business owner you need to assess your insurance requirements, including liability insurance, life and health insurance and professional indemnity insurance.

Tax

The HM Revenue and Customs (HMRC) e-learning package gives you the information you need to stay on the right track with your taxes and save yourself time and money.

Finding a workspace

You can work from home or your local café or library; you can hire a hot desk or studio space; or as a freelancer you may be able to work at your client’s office or studio.

Tips for finding premises

  • Get recommendations from other creatives or organisations.
  • Look out for advertisements or listings in local papers or sector magazines such as Crafts Magazine or Design Week.
  • Look at council websites which often publish information about their workshops and business spaces.
  • Online resources such as Artelier, run by Artquest, allow visual artists to swap studios all over the world. Artist Studio Finder can be used to find studios in London. a-n has a good guide for its members who want to set up their own group studio.

If you are looking for co-working spaces, check with local studio providers as they often have hot desks or allow subletting.
Local cultural venues and coffee shops are great to work from, especially if they have free wifi. See if there is a local meet-up group for freelancers like yourself, as these are a good way to network and learn from others.

Financing and budgeting

Planning your finances and budgeting is crucial as a self-employed person.

Consider planning the following budgets:

Start-up budget

The money you need to get your creative enterprise off the ground

Income

This is your predicted monthly sales less costs. Although it can be difficult to predict your sales, try to build up a picture based on:

  • How your work is priced. 
  • How much of this work can you feasibly produce or deliver in a month
  • Will you be doing any marketing activity that might increase your sales (such as shows, exhibitions) 
  • Are there any times of the year when you are likely to be particularly busy
  • Are there any times of the year your work could be less in demand

Expenditure

To plan for your business or self-employment, you will need to consider the costs of running your business each month. Download our Guide to working out expenditure below‌. This is what you worked out above for your monthly business expenses.

Organising your money

  • Get a separate bank account to manage your self-employed income.
  • Set up a spreadsheet to monitor money from the start.
  • You may decide to hire an accountant to help you manage your finances and prepare your end of year tax returns.