Article 5 tips for starting a business in your 'Second 50'

The common three stages of life – ‘education, work, retire’ – is a pattern that many people choose to follow. But as life expectancy increases and our priorities evolve, the opportunities for a more ‘multi-staged’ way of life may also grow. This could mean taking a career break to travel, retraining for a new career path, or even following a passion and starting your own business.

If you’re in your 50s or above (what we like to call your ‘Second 50’, a term used in our recent research), it might be the first time you’ve had enough money to consider starting your own business. In fact, the latest ONS data shows that while one in ten 16 to 49-year-olds are self-employed, close to one in five aged 50 to 69 have the same status.¹

If you’re thinking of taking the leap into self-employment, we’ve outlined some tips for starting a business in your Second 50:

1. Choose something you love
2. Consider how you’ll set up your business
3. Work out how much you’ll need and where you’re taking it from
4. Don’t forget about your pension
5. Keep a close eye on your savings over time

The following shouldn’t be taken as advice – this article is for information only. All references to taxation are based on our understanding of current taxation law and HMRC practice, which may change. The value of any tax relief will depend on individual circumstances.

1. Choose something you love – but be sure to think it through

They say if you do something you love, you’ll never work a day in your life. And the great thing about a more multi-staged life is potentially having more time to pursue your interests. If you’re in a position where you’re financially secure – having built up a pension and savings throughout your working life – then you might consider your new venture more of a passion project than a money maker.

However, if your aspiring new business is the next step in your career and is intended to support your income when you retire, you’ll want to make sure it makes financial sense.

Think about creating a solid business plan. This is so you have a clear idea of what you want to achieve from your business and how much time you want to devote to it, to give yourself the best chance of success.

You should also do some research on your business idea, look at the market for competition and consider getting professional help and support to get your idea up and running.

2. Consider how you’ll set up your business

You’ll need to decide how you want to set up your business. There are two main ways to do this – set up as a sole trader or register as a limited company. Both options come with their share of benefits and considerations, such as different levels of administrative setup, cost, tax and legal responsibility. For example:

• Limited companies have to register with the Government’s Companies House and then file their accounts and a confirmation statement each year with Companies House too, while sole traders don’t.
• Sole traders pay income tax on their profits, and report this under self-assessment with HMRC, while limited companies pay corporation tax on their profits via a corporation tax return.
• Sole traders have unlimited liability for any debts relating to their business, compared with shareholders of limited companies where liability is limited.

Setting up as a sole trader is often preferred due to the simpler process to set up and run a business. However, depending on your plan and needs, a limited company might be the better option for you. This can be a complex area, so it’s important to thoroughly understand the differences and implications involved. We recommend you get advice from an accountant or tax adviser.

You can find out more about the differences and other types of self-employment on the Government’s MoneyHelper website.

3. Work out how much money you need – and where you’re taking it from

It can be easy to underestimate the costs of setting up a business. This is where getting professional advice can help you get a clear idea of how much you’ll need. From there, you can consider how you’ll fund your new venture.

• There might be funding or support available – the Government website is a good place to start. You could also check for more local funding opportunities and grants in your area.
• Maybe you’re considering a small business loan as a way to get your business off the ground. While this is a common option, make sure you’re not taking on more debt that you can afford to pay back. You can learn more about managing debt in our Financial wellbeing index.
• If you’re planning to withdraw from your pension or other types of savings to fund your new business, it’s worth considering the implications of doing so. For example, taking a large sum from your pension means you’ll have less left in your pot that can be invested and potentially grow. If you’re withdrawing from other types of saving accounts, there may be early withdrawal fees to consider. There may also be tax considerations to think about when withdrawing money from your savings.

4. Don’t forget about your pension

When you become self-employed, you’ll no longer benefit from pension contributions from an employer. You’ll also miss out on potential Government tax relief if you’re not paying into a pension. These are points to take into consideration if your aim is to keep building your pension pot alongside your new business.

There may be some additional benefits to paying into a pension when you’re self-employed. If you’re set up as a sole trader, you might benefit from additional tax relief above the basic rate (claimable via your self-assessment tax-return). If you have a limited company, and pay into your pension from a business account, it could count as a business expense. This means your business could benefit from a saving on corporation tax.

What if I’ve already accessed my pension?

Even if you’ve started taking some of the money from your pension, there’s nothing to stop you from still paying into one. If you’re under 75 and resident in the UK, you could still benefit from tax relief on your contributions – the value of which will depend on your individual circumstances.

Note that if you’ve taken benefits from a defined contribution (DC) pension (the most common type of workplace pension), you might be limited to how much you can pay in while still benefiting from tax relief. This is known as the Money Purchase Annual Allowance (MPAA) and means you’d only benefit from tax relief on up to £10,000 of contributions each tax year.² Whether you trigger the MPAA depends on how you’ve taken the benefits from your pension. You can find out more about the MPAA on MoneyHelper.

High earners should also be aware that they may be subjected to a tapered annual allowance. There are also recycling rules to be aware of where a tax-free lump sum is taken and then used to fund further pension contributions. 

5. Keep a close eye on your savings over time

Once your business is up and running, don’t forget to keep track of your savings and how any investments are performing. Whether your business is a success or not, you’ll want to make sure you still have enough money to live on.

It can be difficult to do this yourself even if you’re an experienced investor, so consider speaking to a financial adviser. They could give you the assistance you need to make sure you balance the desire to boost your business with the need to keep your income flowing until any profits from the business are generated. You can find an adviser through the MoneyHelper website. There’s likely a charge for taking financial advice.

Remember, the value of an investment can fall as well as rise and isn’t guaranteed. You could get back less than you paid in.

Making the most of your Second 50

A longer life isn’t without its challenges, but we believe it’s a chance to embrace new opportunities that you might not have thought were possible. Whether that’s retraining for a new career, taking time out of the workplace or starting a business instead of retiring. We all have different circumstances, so take the time to consider what your Second 50 means to you.

To learn more about our Second 50 research and the changing world of work, read our Second 50 report.