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Starting your own business? These are the hidden costs to keep in mind

3-minute read

Anna Delves

Anna Delves

8 February 2017

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If you’re considering becoming self employed, there are a number of costs you’ll need to keep in mind. We’ve summarised the main ones to help you plan ahead.

1) Stock and equipment

Depending on the type of business you plan to run, you may need to purchase stock and equipment.

If, for example, you’re becoming a freelance graphic designer, you’ll need a computer, the required software, and perhaps a graphics tablet. If you’re striking out on your own as a plumber then it’s a commercial van and tools that you need. For online or physical shops, you’ll have to think about what you’re going to stock and how much.

It’s important to take these costs into account as not budgeting for them correctly could mean your business falls at the first hurdle.

2) Premises

Another primary consideration should be your business premises. For certain businesses you may want to work from home, or you will be working remotely at a client’s building - such as the freelance graphic designer and plumber mentioned above.

However, other businesses will need a separate location, such as a shop front. If you’re planning to buy or lease a building you should take this cost into consideration, as well as any equipment you will need to install and decorating that will need to be done.

3) Dental and healthcare provisions

Once you’ve covered the first two points, there are some other costs that might be less obvious at first glance.

While some employers provide dental and healthcare plans to their employees, if you set out on your own you’ll need to remember that these costs will no longer be covered. Of course, dental treatment and healthcare are provided on the NHS, but dentist appointments usually cost around £20 for just a check up, and if you want to go private the costs will be considerably higher.

4) Tax

Unfortunately, tax can be easy to forget when you become self employed. When you’re employed by someone else, they take care of your income tax and National Insurance contributions, but as someone who’s self employed you need to factor these in yourself.

Remember to register for your Self Assessment tax return and to complete your tax return every year. If you forget, you could be stung with a hefty fine. Our guide for a stress free tax return will help put your mind at ease.

It's also worth keeping in mind that a lost of the costs detailed in this article will count as self employed expenses, which are tax deductible. It's important to know what is and what isn't an allowable expense, so check out out articles on self employed expenses.

5) Holiday and sick pay

One of the biggest drawbacks to becoming self employed is that you will no longer be entitled to holiday and sick pay. If you run a small business or freelance then, at least at the start, you’ll only have the money that you’re able to earn.

So if you can’t make it to a particular job because you’ve come down with the flu, unfortunately you won’t be paid. However, the upside of being your own boss means managing your own time, and if you’re able to shuffle things around, you’re less likely to lose out because of sick time and holidays.

6) Pension planning

Another consideration when you become self employed is your pension. When you work for someone else you can pay into a pension without even having to think about it, but when you’re your own boss, pensions require a bit more work.

There are a number of options for freelancers and small businesses when it comes to pensions. Check out our guide to pensions for the self employed if you want to know more.

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7) Insurance

Last but not least, insurance is an important consideration for anyone who’s planning to go self employed.

If you work at external locations or invite clients or customers to visit you, then you may want public liability insurance to protect you against claims made in the event of damage or injury to their parties.

If your work could possibly cause a financial loss for your client, for example if you give them incorrect advice or accidentally send sensitive information to the wrong people, then it’s professional indemnity insurance you should consider.

Depending on the type of business you’re setting up you may want a range of other covers, including business equipment insurance, tool cover and personal accident insurance. When you’re planning your business, it’s a good idea think about whether or not you’d be able to keep trading should the worst happen and you’re not covered, and buy your insurance accordingly.

Are there other costs you’re taking into account as you plan your business? Let us know in the comments

Looking for self-employed insurance?

With Simply Business you can build a single self employed insurance policy combining the covers that are relevant to you. Whether it's public liability insurance, professional indemnity or whatever else you need, we'll run you a quick quote online, and let you decide if we're a good fit.

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Anna Delves

Written by

Anna Delves

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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