How to Become Self-Employed in the UK

Written by Nicola Wylie
Last updated June 12, 2022

Are you considering a career change or maybe even going out on your own? It may seem like a daunting prospect, but there are many amazing benefits to being your own boss. To help you through the transition, this guide tells you everything you need to know about how to become self-employed. We’ll weigh up the pros and cons and give you some insight into the financial assistance available to self-employed workers in the UK.

Becoming Self-Employed in the UK: The Pros

Whether you want to start your own business or switch careers, you should always do your research before you register as self-employed in the UK. That way, you know exactly what to expect.

In this section, we break down the advantages and disadvantages for self-employed workers in the UK.

Let’s start with the benefits of becoming self-employed. Here are some of the biggest pros.

  • Job flexibility – You are your own boss and can make your job fit your life
  • Bigger earning potential – You can typically charge a higher rate as a freelancer 
  • Professional development – Learn new skills as an entrepreneur such as marketing, sales, and creative direction
  • Increased job satisfaction – Choose varied projects that excite you
  • Financial benefits – Certain expenses like utilities and travel are tax-deductible
  • Opportunity to scale – You can grow your business to the size you want at the speed you want
  • Work from home – Choose where and when you work
  • Government support – The UK government provides self-employed workers with a range of benefits, grants, and loans for self-employed to support you

Becoming Self-Employed in the UK: The Cons

The perks of becoming self-employed are undeniable, especially if you are craving a career change. Having said that, it’s not for everyone. 

Here’s a closer look at the downsides of being self-employed:

  • Financial instability – Start-up costs can add up, especially if you haven’t got an established client base with a regular income lined up at the beginning.
  • Constant hustle – Being self-employed typically means you have to find your own clients or customer base, this can be time-consuming.
  • Extra admin – Being self-employed comes with extra responsibilities such as invoicing and bookkeeping.
  • Competition – As your own boss, you will need to work hard to stay ahead of the competition to main your clients.
  • Unstable earnings – Unlike the monthly wage you receive as a contract employee, there is a chance that your earnings will rise and fall throughout the year. This can make it trickier to get loans or mortgages approved.
  • No paid holidays – One of the biggest perks of being an internal employee is that you’re entitled to paid holidays and sick leave. Self-employed workers don’t have this benefit
  • Isolation – Self-employed workers may feel more isolated than contract workers as they don’t have a large team of colleagues to support them.
  • No state pension – If you are wondering does a self-employed person get a state pension, the answer is no. Therefore, you will need to set up a private pension plan.

Advice on Becoming Self-Employed: Is it Right For You?

Before we look at how to become self-employed in the UK, let’s discuss how to know if it’s right for you. We’ve come up with 6 key questions to help you make the best decision for you and your family. 

  1. Do you have clients or customers lined up? What is your plan for growing your client base?
  2. Have you calculated how much money you will need to set yourself up (plus 10% for emergencies)? Do you have this money available right now?
  3. How long can you go without a stable income? Do you have a nest egg or plan to support yourself while you get your business off the ground?
  4. Do you understand what documentation you need to fill out to become self-employed in the UK?
  5. Are you confident that you can handle all sides of the business by yourself? Including branding, sales and marketing, and bookkeeping?
  6. Have you considered the impact of losing employee benefits such as sick leave, paid holidays, maternity leave, and pension contributions? Do you have contingency plans for this?

How To Become Self-Employed in the UK

Research shows that as of March 2022, there are 4.23 million self-employed workers in the UK. So, what is the definition of self-employed in the UK?

You are generally considered self-employed if you run your own business as an individual, sell goods or services, are a partner in a business partnership, or set up your own limited company. 

According to, if you work for yourself you are a sole trader and should inform HM Revenue and Customs (HMRC). 

Registering as a Sole Trader in the UK

As a sole trader in the UK, you are responsible for any losses your business makes. On the other hand, you are able to keep all profit from your business (after-tax).

You need to set up as a sole trader if you earned over £1,000 from self-employment in the last tax year. This is an important step because you may need to provide proof of self-employment in order to claim benefits such as tax-free childcare. Most self-employed workers choose to make voluntary Class 2 National Insurance payments. By doing so, you are eligible for more workers’ benefits.

Follow these steps to register as a sole trader.

  1. Register for Self Assessment – this involves sending an annual Self Assessment tax return, keeping records of all expenses and earnings, paying income tax, and paying Class 2 and 4 National Insurance contributions
  2. Inform the HMRC that you pay tax through Self Assessment – you need to file a tax return each year
  3. Register for VAT – If your business makes more than £85,000, you are required to register for VAT. Alternatively, you can choose to register for VAT if you sell your services to other VAT-registered businesses
  4. Name your business – If you trade under your own name, this step isn’t necessary. However, if you want to choose another name for your business, you will need to register it. Both your name and your business name should be on all official documentation such as invoices and contracts
  5. Consider updating your insurance plan – You may need to take out public liability insurance
  6. Plan for your pension – Since you will no longer be paying into a workplace pension scheme, you should consider a private pension plan to prepare for the future

How Much Tax do Self-Employed Workers Pay in the UK?

Tax is a major concern for those thinking of becoming self-employed. However, the good news is that tax bands are the same for self-employed and employed workers in the UK. So, if you earn £12,500 or less in the 2021 – 2022 tax year, you don’t need to pay tax. 

After that, the amount of tax self-employed workers will pay depends on their earnings. Typically in the UK, you can expect to pay 20% income tax on income up to £50,000. This rises to 40% on incomes over £50,000 and 45% on incomes that exceed £150,000.

What Can Self-Employed Workers Claim in the UK?

Did you know that self-employed workers in the UK can apply for different grants, tax credits, and other benefits? It’s important to do your research and know what discounts are available to you. Let’s see a few examples:

  • Self-employed benefits – The UK government offers income support, working tax credit (or Universal Credit), and other benefits to low earners
  • Self-employed grants – New self-employed workers can apply for a New Enterprise Allowance from the government. It is a weekly allowance available to self-employed workers who are single parents, disabled, sick, or on Jobseeker’s Allowance 
  • Self-employed expenses – As a self-employed worker, you are entitled to claim back part of your business expenses such as utility bills, office costs, travel, and other business-related expenses

Final Thoughts

We hope this guide on how to become self-employed in the UK has proven helpful. While self-employment isn’t for everyone, there are significant benefits. Especially for career changers looking for a new challenge. One of the biggest upsides of becoming self-employed is that you can do it at any age. 

At Refreshing a Career, we have put together a wealth of valuable resources for career changers, employers, and anyone looking for new opportunities. You’ll find guides like this on retraining, choosing a new career, and work-life balance tips.

For further advice, check out our resources on changing careers or take a look at our specialised job board for self-employed job opportunities near you.

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Last Updated: Tuesday July 19 2022
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