A second career could buy you freedom, or leave you financing a hobby. Here is how to test the numbers, choose a business structure and protect your retirement.
Perhaps you have spent years thinking you could do your job better without the meetings. Perhaps redundancy has made the decision feel rather less theoretical. Starting a business in your forties or fifties can be a good move — but enthusiasm will not pay the mortgage while a customer considers your invoice.
Before you order business cards, work out what you need the business to earn, what you stand to lose by leaving employment and how you will keep saving for retirement.
Start with your household’s monthly essentials: mortgage or rent, bills, food, debt repayments and anything else that cannot quietly be cancelled. Then add the costs your employer currently absorbs, such as pension contributions, paid leave and equipment. Your salary is not the number a new business has to replace; your whole employment package is.
Now test the idea against sales, not compliments. If you plan to charge £350 a day and can bill for two days a week over 40 weeks, that is £28,000 in annual turnover. It is not £28,000 in your pocket. Software, insurance, travel, unpaid admin and tax come out of it. So does the time you spend looking for the next client.
Ask what a slow quarter would look like. How many paying customers do you need each month? How long will they take to pay? What happens if the biggest one leaves? A few paid projects alongside your job, if your contract permits them, will tell you more than another six months polishing a logo.
Keep a cash buffer for living costs and a separate pot for business expenses and tax. Decide in advance how much of your savings you are willing to risk. Being old enough to know your strengths is useful; being close enough to retirement to recognise you have less time to repair a large loss is useful too.
A sole trader is usually the simpler way to test a modest venture. You run the business yourself, keep its profits after tax and register with HMRC for Self Assessment when required. But you and the business are not legally separate: business debts can become your personal problem.
A limited company is a separate legal entity. That can limit your personal liability, but it does not make every risk disappear; consider carefully any personal guarantee you are asked to sign. You also take on company accounts, tax returns, record-keeping and a yearly confirmation statement. Online incorporation costs £100, and filing the confirmation statement online costs £50 under the fees in force from 1 February 2026. Neither fee buys you a customer.
Do not assume a company automatically means a smaller tax bill. A company pays Corporation Tax on its profits, while money you take out can be taxed through salary or dividends. A sole trader pays Income Tax on taxable profits and may owe National Insurance. Which works better depends on your other income, how much you need to withdraw and the cost of running the company. An accountant can compare both routes using your figures.
You can generally move from sole trader to limited company later. The important first decision is whether the work pays; the letters after its name can wait.
A business is not a retirement plan until it can pay you and still leave money for retirement.
For the 2026–27 tax year, you must register as a sole trader if you earn more than £1,000 in a tax year from self-employment. That is income before expenses, not profit. The £1,000 trading allowance may simplify a small sideline, but you cannot use it and deduct business expenses from the same income. Keep records from the start, even while you are testing the idea.
Self-employed profits are added to your other taxable income for Income Tax. The standard Personal Allowance is £12,570 in 2026–27, although it reduces once adjusted net income exceeds £100,000. England, Wales and Northern Ireland share the main rates and bands for non-savings income that year; Scotland has different bands for earned income. An extra pound of profit may therefore be taxed differently depending on where you live and what your job or pension already pays you.
For 2026–27, Class 4 National Insurance applies to self-employed profits above £12,570: 6% up to £50,270 and 2% above that. If profits reach £7,105, Class 2 contributions are generally treated as paid, protecting your National Insurance record without a separate Class 2 bill. Below that, voluntary contributions may be worth investigating.
The first Self Assessment bill can sting. If a qualifying bill is £3,000 and you made no payments on account, you could owe £4,500 on 31 January: the £3,000 bill plus £1,500 towards the following tax year. Another £1,500 would normally be due on 31 July. HMRC’s payments-on-account rules have exceptions, so check your own calculation rather than treating every invoice as spendable cash.
VAT is a separate test. Registration is normally required if taxable turnover exceeds £90,000 over the previous 12 months, or you expect it to exceed £90,000 in the next 30 days. For sole traders within scope, Making Tax Digital for Income Tax already applies from 6 April 2026 where qualifying gross self-employment and property income exceeded £50,000 in 2024–25. The next thresholds are more than £30,000 in 2025–26 for a 6 April 2027 start, and more than £20,000 in 2026–27 for a 6 April 2028 start. Those are income figures before expenses, not profits.
If you leave employment, your employer’s pension contributions stop. Nobody at your new business will quietly replace them unless you put retirement saving into its budget. You can arrange your own pension if you are self-employed; the amount it eventually pays depends on contributions, investment returns, charges and when you take it.
Even £500 a month set aside for ten years is £60,000 before any investment growth or losses. That calculation is not an instruction to put every spare pound into a pension. You also need accessible money for a lean trading period, because pension savings are generally locked away until at least age 55, rising to 57 from April 2028.
Check your State Pension forecast and National Insurance record before assuming your new working pattern will leave them untouched. If your profits are low, find out whether voluntary contributions would actually improve your forecast before paying them. If you have already flexibly accessed a defined contribution pension, take particular care: the money purchase annual allowance is £10,000 in 2026–27, rather than the standard £60,000 annual allowance that applies to most people.
Finally, consider the exit as well as the launch. Could you return to paid work if sales disappoint? Could you reduce hours rather than resign immediately? If the decision involves giving up valuable pension benefits or investing a substantial part of your retirement savings, use MoneyHelper or speak to an FCA-regulated financial adviser before making it irreversible.
Starting a business after 40 can work if paying customers, realistic costs and a cash buffer support it; age alone is neither an advantage nor a warning sign. Test demand before leaving a salary, choose between sole trader and limited company for your actual risks and finances, and budget for tax and retirement saving from day one. If the plan only works when every month goes perfectly, it is not ready yet.
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