THE NITTY-GRITTY OF BEING SELF-EMPLOYED

Starting your own business is a big step, regardless of which route you take: going freelance and registering as a sole trader, forming a partnership, or setting up a company.

Across the Liverpool City Region, many people choose to take control of their working lives by launching independent ventures or becoming self-employed. If you’re about to branch out on your own, getting the foundations right from the outset can save time, money, and stress later on.

This article is for general guidance only and is not intended to provide legal or financial advice. It is not exhaustive, but it aims to highlight some of the key responsibilities and considerations to be aware of when setting up on your own. Figures are correct at the time of publication and are subject to change.

Requirements for freelancers and sole traders

If you go self-employed or freelance, be sure to register with HMRC for self-assessment if you earn over £1,000 a year.

You must keep accurate records of all business income and expenses. Having a separate business bank account makes this much easier to manage.  You’ll file a yearly self-assessment with HMRC, and they will record your profits and calculate tax and national insurance.

Don’t slip up: From April 2026, if you earn over £50,000, you must submit quarterly updates digitally. 

What else? When turnover exceeds a certain amount, you will be required to register for VAT. 

Is it for you? Sole trading is simple and is often managed without an accountant. You keep all profits after tax and have control over your business, clients, and hours. But you’re personally liable for all debts.

Top tip: Cash-basis accounting is often simplest for sole traders. This is recording income and expenses when money is actually paid or received. Research whether it suits you better than accrual accounting, which is recording income and expenses when they are actually incurred.

Setting up a partnership

Two or more founders can form a partnership, which is a way of setting up a business without being a limited company. Profits are shared, and Companies House does not publish financial statements as it does for limited companies, but the business is not legally separate from its partners.

In a general partnership, each partner registers for tax with HMRC and files their own self-assessment, as a sole trader would.

Other possible structures include a Limited Partnership (LP) and a Limited Liability Partnership (LLP). Consult a specialist accountant for help with Companies House and HMRC. For instance, general partnerships don’t file at Companies House, but LLPs do.

Don’t slip up: You must have a business bank account if you are an LLP or LP; it’s not just best practice.

What else? Whoever is the ‘nominated’ partner will have responsibility for ensuring the partnership tax return is submitted.

Is it for you? Partnerships suit those with complementary skills and a shared vision. They’re ideal for low-risk businesses, such as professional services.

Top tip: Have a detailed agreement covering profit sharing, individual expectations, and what happens if the business splits or dissolves.

Limited companies and being a director

A limited company must register with Companies House. Directors and shareholders are officially appointed, and annual accounts filed. HMRC and Companies House set deadlines based on the incorporation date.

Companies pay corporation tax, while directors pay personal tax on salary and dividends. As turnover grows, limited companies can be tax-efficient. Directors can be fined or disqualified if responsibilities aren’t met, even if you use an accountant.

Don’t slip up: Private landlords using a limited company may have to prove they are spending 20 hours a week running the company to qualify for some tax reliefs. 

Is it for you? Limited companies suit stable businesses wanting to separate business and personal finances. They become more tax-efficient above a certain level of profit, but accountant costs may outweigh the benefits.

What else: If turnover is under £632,000, balance sheet under £316,000, and fewer than 10 employees, you qualify as a micro entity. You can produce simplified accounts, keep your profit and loss private, and possibly file with Companies House and HMRC yourself.

Top tip: If switching from sole trader to limited company, you’ll have to work out how to formally transfer assets, equipment, and stock. Get advice to avoid mistakes.

More to consider

As you have read, deciding how to set up your business can be quite complex! 

If you are employed and running a side hustle, check out the rules that apply to you. And if the purpose of your business is to benefit the community or has a social purpose, you could investigate becoming a community interest company (CIC). 

Some other things you should look into when deciding to go into business include:

• The government’s agenda to make tax digital 
• Budgeting for taxes and National Insurance 
• PAYE rules if you pay yourself or others a wage
• Professional indemnity, public liability, and employer liability if you hire help
• Customer contracts to make deliverables clear
• Having a business name that is compliant and available

Getting started

If you do decide to become self-employed, you can start the process with HMRC. The Gov.uk website will guide you through all the complexities step by step. If you’re setting up a company, Companies House is the best place to start. Be sure to check out their Features and blog regularly, as many changes are being implemented right now.

CLICK HERE to read about Alfie Brown, an entrepreneur from Bebington, Wirral. The 26-year-old is the brains behind Wirral Webs, a growing sportswear business that sells rare and in-demand designs and shares his story of becoming self employed.