Self Employment

It may be that you are interested in either setting up a business of your own, as a sole trader, or in partnership, with others.  Alternatively, you may consider setting up a Limited Company which makes you a company Director.  The title of Director sounds a lot grander than it is in reality and there will be numerous obligations on you, but this option can offer some tax benefits, depending on how you decide to pay yourself, and some additional protection against your personal assets.  It’s quite simple to set up a Limited company and can take no more than an hour online and for a lot less than you probably thought.

Working for yourself and having no line-manager may be something that you are attracted to and will be in stark contrast to your police service career.  Fitting your business around family commitments and gaining an improved life/work balance (as opposed to work/life, which suggests the former to be more important) than you may have been used to is definitely worth some consideration.  You won’t necessarily work less hours, but you are more likely to be able to work when it suits you and take time out when you need to for things like the school run, events, holidays and training etc.

Setting up in Business

If running a business and being your own boss is something you have a desire to do next in your working life, there are a number of things that you will need to consider and steps to take to enable you to get things up and running.  This guide is intended to provide you with some thoughts and ideas as to what you need to be thinking about and doing in order to get started.

There are various options to consider as to the type of business you want to create.  You could be a sole trader, Limited Company, partnership or one of the less common choices.  Whichever you choose, they each have their own nuances and specific rules in terms of how they are set up and run.

The first thing you need, if you don’t have one already, is a business idea.  Your business idea is about you crystallising your thoughts and deciding exactly what it is that you are going to sell in order to generate an income.  You may wish to sell products that you can make or buy, or you may wish to sell services, which could be your own personal time or you could take people on and send them out to provide the service on your behalf.  Whatever you decide to do, there are a number of steps to go through depending on the type of business you wish to run.

Sole Trader

This is the most straightforward business to set up and run.  It is basically you setting up a business on your own, with you being the actual business, although you can still give it a name e.g. Tom Smith Plumbing.

• Most simple format to operate.
• Typically a ‘one-man/woman band’ principle (though you could take on additional people).
• Simple accounts that do not require auditing.
• Draw income out of the business profits and pay tax and National Insurance in a similar way to working as an employee.
• Can be perceived as a small entity, which may be ok for the type of business you want to run.
• Can always switch to a Limited Company later.
• Required to register with HM Revenue & Customs (Sole Traders) as soon as you can after starting your business.  At the latest, you should register by 5 October in your business’s second tax year (the link takes you to Sole Trader information overview and then the registration page by following the instructions).
• If the business goes into debt and it owes money, then you are personally liable as the business and you as the sole trader, are one and the same.
• A sole trader must be registered for Self-Assessment (tax returns) if they do not normally receive an annual tax return to complete.

Partnership

A partnership is very similar to operating as a sole trader, except there will be more than one person, each having a share of the profits/losses and risk.

• As with a sole trader, the debts of the business can mean the personal assets of the owners are at risk and if one partner does something to expose the business to risk or debts i.e. makes a commitment on behalf of the business, all are equally liable for the consequences.
• The benefits of a partnership are they can bring in more initial funds, there is a greater pool of knowledge and resources (to do the work) and there are more people bringing more ideas to the table.  One of the key aspects of running a business is finding new clients, so the more partners there are, the more people there can be to market the business.
• As with the sole trader format, partners are individually paid and taxed as being self-employed and should register with HM Revenue & Customs (Partnerships).  You must register the partnership or individual partners by October 5 in your business’ second tax year, or you could be charged a penalty (the link takes you to Business Partnership registration and information page).
• Each partner must be registered for Self-Assessment (tax returns) if they do not normally receive an annual tax return to complete.
• It’s usual for the partners in a partnership to enlist a solicitor to draw up an agreement to cover things such as who invested what amount, how profits or losses will be apportioned, how the business is to be run and decision make.

Limited Company

This tends to be the least risky option in terms of exposing your personal wealth, as your risk is limited to that amount which you invest into the company which could include any personal guarantees you may have given if you obtained finance.

A Limited Company is a separate entity from those who create it and is treated as such, including legally.  The individual or group of individuals who form the company can be appointed as Directors with responsibility for running and managing the company.  The Directors and anyone that the Directors decide, may also hold shares in the company, which are used to determine the percentage of profits they receive.

• A Limited Company can be seen as a more credible business, so if growth and status are important, this may be the best option.
• This is the most tax-efficient choice for going into business, though it also comes with a greater administrative burden.  Companies pay Corporation tax based on profits and costs.
• It can be costlier to run a Limited Company in the early days, including accounting requirements.
• The Company has to be registered at Companies House and there are various legal obligations placed on the Directors as to how it is run.
• The quickest way to set up a Limited Company is to pay a formation agent to do it for you online, such as Companies Made Simple. This must be done before the company can begin to trade but can take only a few hours to do.
• Some of the rules and requirements for setting up a Limited Company can be found here.

There are some variations on the above four main business types that people may set up and it’s always worth taking professional advice if you are unsure, but the vast majority of start-up businesses fall into one of the above types.

Government guidance on setting up a Limited company can be found here: https://www.gov.uk/limited-company-formation/overview