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Financial considerations of becoming self-employed

Many people, at one point or another, think about leaving the ranks of conventional employment to start their own business. Sometimes the proposed business venture will be within the same industry and sometimes it will be a complete departure from their career to date. Taking the plunge into the world of self-employment can be scary but also incredibly rewarding. After all, being your own boss allows you to build something meaningful and should provide you with some flexibility that is often difficult to find when working for someone else. Giving credence to some of the important financial considerations can help you properly prepare for the transition.

Ideally preparations for this transition should begin a few years before with a bit of cash flow planning. Individuals should take a hard look at their balance sheet and understand what resources are available to put towards the new venture. Having a business plan and an appreciation for how much of an investment will be needed to get the business up and running is crucial to increasing the odds of success. By starting early you can ensure that you increase your savings, if needed, and set aside enough to cover your personal needs as you transition.

Many people underestimate the value of the benefits they hold under their current employer when considering self-employment. Whether it be employer contributions to pensions or protection cover for life and critical illness, these are important areas to account for. As part of the planned transition, you should look at future pension options as well as thinking about sourcing privately placed insurance policies to ensure you maintain proper cover to protect your family should something unexpected happen.

Lastly, tax is an area that will change, as a self-employed individual will be responsible for paying their own taxes and applicable national insurance contributions. Taking advice from a qualified tax adviser on the optimal structure for your new business and best way to receive compensation can be extremely valuable. You want to make sure that you properly notify HMRC of any changes and get things set up appropriately from day one to prevent any unnecessary headaches and this will allow you to focus on the success of your business.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice.  MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.


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