what are my legal obligations?
Are you planning to set up a side activity but you are not sure of your legal obligations? We worked with DAS UK to create this guide, which provides an overview of the legal obligations of running a side business.
DAS UK is our provider of legal protection insurance for businesses and they are experts in justice and legal services for individuals and businesses.
Running a secondary business: what about my main job?
If you are an employee, you have an obligation not to compete with your employer. This is governed by common law, by virtue of the implicit duty of loyalty (essentially, the duty of good faith or loyalty).
Some employers often include express terms in your employment contract stating that you cannot compete with them. Your contract may also state that you must ask them for permission to start a side business.
If you start a side business that competes with your employer, they will see this as a conduct problem and it could end with your dismissal.
So, before starting a side activity alongside your main job, check your employment contract to see if you need to obtain authorization. If you are not in competition with your employer, your employer should not unreasonably deny you permission.
Your employer may still be concerned that your secondary activity will have an impact on your weekly rest in terms of working time. Working time regulations define the amount of rest and free time that employees must have between working hours.
Are there any licenses I need to start a side business?
It depends on what side bustle you want to start.
All businesses must follow the laws that govern what you can and cannot do when it comes to selling goods and services. It is best that you find out what obligations are in place for your industry, including whether you need business licenses.
You should do this before you start negotiating to avoid any action from your local authority, police, or health and safety official.
What agitation insurance do I need?
It is important that you think about business insurance before you start your side business.
The main covers include:
liability insurance – this covers you if a member of the public gets hurt or loses financially and blames your side commotion
professional liability insurance – if you are giving advice or providing a service to clients, this protects you if your client loses money because of bad advice, service or designs
employer liability insurance – if you develop your secondary activity and eventually decide to hire staff, you are legally required to have employer liability insurance
If you operate a home business, it is advisable to contact your home insurer, as you may not be covered for business activities.
If you want to become a member of a professional body, it may require you to have business insurance. Some sites and providers may also require that you have insurance as part of your contract with them.
Which legal structure should I choose for my side hustle?
There are three types of legal structure:
Setting up as an individual entrepreneur is very easy. Once you register as a self-employed person with HMRC and start trading as an individual, you will be considered an individual entrepreneur. There is not a lot of paperwork and there are not a lot of legal obligations. The main downside is that independent traders are personally liable for all debts, which means your own assets (including your home and savings) are at risk if you cannot pay your business debts.
If you are starting your business with someone else, you can sign up as a partnership. Someone will need to be the “designated partner” who will take care of the business files and tax returns. There are three types of partnerships. An “ordinary company” has fewer obligations than limited partnerships and limited liability companies (LLPs), which are more like limited liability companies.
Finally, if you create a public limited company, your personal assets are distinct from professional assets. This means that they cannot be used for commercial debts. Although this is a big advantage, setting up and running a public limited company comes with many initial and ongoing legal obligations.
Learn more about the differences between an individual entrepreneur and a limited liability company.
What about secondary business tax in the UK?
You have to pay taxes on your income. Employees pay income tax through PAYE, but if you earn money from a side activity, it is considered self-employed income and you have to report it to HMRC.
Sole proprietorships and partnerships pay income tax. They must register as self-employed with HMRC and submit an annual self-assessment tax return.
Public limited companies pay corporate tax.
There are business expenses that you can deduct from your profits to calculate your total taxable income. But taxation is complex, so if possible talk to a professional accountant or tax advisor to find out more.
Learn more about paying second job tax.
What about the intellectual property (IP) of my secondary activity?
Intellectual property (IP) is what you artistically create, including brand names, songs, new inventions, or symbols.
Developing your new product, service, or brand is important to the success of your business because it helps set you apart from your competition. You must therefore think about protecting your creations.
And from another point of view, you need to make sure that you don’t infringe on another company’s brand, product, or logo to help boost your own business.
Businesses large and small will work to protect their intellectual property, so research them before negotiating. Intellectual property is often registered (eg through trademarks or patents). You can search for a brand here.
Learn more about intellectual property.
How legal expenses insurance can help you
Legal protection insurance covers business legal fees or prosecution costs for situations such as labor courts, HMRC tax inquiries, or civil actions brought under data protection law.
If you have legal protection insurance under your Simply Business contract, you also have access to a number of useful services via DAS Businesslaw (you will just need your voucher code which can be found in your policy documents. to register).
DAS has a legal helpline, available if you have a serious legal issue or just want to check something with an advisor. They also offer a range of models and legal guides.
Photograph 1: Nata Bene / stock.adobe.com