Self-Employment: how to get started

It very much depends on your personality, as well as more practical considerations. Is there a need for the service you provide? Can you manage your time effectively? Can you manage your cashflow?

On a more practical note, if you're about to take the leap, make sure you're clued up on the following areas.

You need to register as self-employed with HM Revenue & Customs within three months, or you could be penalised. You can do this using these forms, or by phoning the HMRC's Newly Self-Employed Helpline on 0845 915 4515.

You'll be responsible for your own tax contributions, and will need to fill in a Self Assessment tax return form every year.

In a nutshell, you'll need to set aside at least 25% of your income (more if you're a higher rate tax payer) so you can pay your tax bill when it comes in. You could pay this money into a separate savings account, so at least earns some interest before it lands in the taxman's pocket.

The way you pay National Insurance contributions will also change. When you're self-employed, you're responsible for paying Class 2 and Class 4 National Insurance.

Class 2 contributions are a fixed weekly amount - currently £2.30. You can set up a standing order to pay these every month, or pay them quarterly by cheque or over the phone.

Class 4 contributions are calculated as a percentage of your taxable profits. Self-employed people currently pay 8% on annual taxable profits between £5,435 and £40,040, and 1% on any taxable profit over that amount

So, as well as tax, you need to set enough money aside to pay your Class 4 National Insurance bill at the same time.

If you're paying off a student loan, your yearly payment will be taken at the same time as you pay your tax and Class 4 National Insurance - so you'll need to set aside money for this as well.

The amount you'll need to repay will depend on your income, so check with the tax office to find out the percentage repayment that's likely to apply to you.

When you're self-employed, there's no regular salary. This means that if clients don't pay you on time, you could find yourself in a tight financial spot.

With this in mind, it's important to have a substantial savings cushion you can fall back against when the cash isn't flowing as it should. This cushion should be equivalent to three to six months' salary, or more if possible.

There are all sorts of models for book-keeping and accounting, so do a bit of research and choose the one you're most comfortable with (a basic Excel spreadsheet suits me fine!). The following tips should point you in the right direction:

• When you're starting out, keep costs as low as possible. You'll probably need to pay for a decent computer and reliable broadband connection, but there are plenty of areas in which you can cut back. For example, if you start working from home, your utility bills could rocket - so see if you can save money by switching your gas and electricity suppliers.
• When invoicing clients, include a clear time limit (for example 30 days) and politely but firmly chase late payments. Keep paper and electronic copies of all invoices sent.
• Remember that all expenses related to your work are tax-deductable. These could be anything from relevant travel expenses and stationery purchases to broadband and heating bills. Keep all receipts, bills and bank statements in clearly-marked folders. You need to keep any paperwork relating to tax for at least seven years.
• Start a `work diary' where you log your professional activities every day. As well as keeping things clear in your own mind, this log will provide additional written proof if HMRC queries your expenses claims for heating, travel and so on.

You'll also need to factor in the loss of company benefits. You may be able to do without the gym membership and the dental care plan, but what about the 25 days' holiday, paid sick leave and the pension scheme? Gulp.

Don't get left out in the cold when it comes to pension contributions. Instead of contributing to a company scheme, consider setting up your own stakeholder pension scheme.

With stakeholder pensions, charges are capped by the government. You'll benefit from tax relief and the flexibility to stop and start your contributions, as well as being able to take the pension with you if you do become employed in the future.

This GOV.UK guide has lots more useful information on the legal and practical ramifications of becoming self-employed. Good luck!