Becoming self-employed is one of the leading growth areas regarding employment types, both here in the UK and in other parts of the world. More and more people realise the benefits of self-employment, looking past potential problems and taking the leap to a career path that works for them. They have done their research, have plans in place, and they are ready for the challenge but, what are the benefits and what do you need to consider?
One of the best things about being self-employed is that you are your own boss. Self-employment comes with a lot of responsibilities and doesn’t suit everyone but, for those who thrive on it, the opportunities are endless. No more having to follow a specific sales script or selling a product you don’t believe in. No more having to follow company rules (unless you make them yourself). The flexibility of the job means you are the one setting the rules but, as a result, there will be nobody there to ensure you stick to them. Self-employment requires a substantial level of discipline to be successful.
You can also be more flexible about where you work, depending on what you do. More people than ever are choosing to work from home. Many jobs can be done entirely over the internet and don’t require business premises, so you can save on overheads that way. You can claim a set allowance against your tax for the costs of working from home, including the mortgage or rent, gas, and electricity.
Flexibility is excellent because it means you can decide your working hours. If you want to open your business at 1 pm and close at 9 pm, then tell your clients this – it is entirely up to you. If you decide to open for business at 7 am, shut for a couple of hours mid-day and close at 3 pm so that you can pick up the kids from school – you can! Set your working hours to work around your life. In the same breath, you are still responsible for getting the work done. Self-employment is an entirely different lifestyle to that of an employee of a company, so it is essential to manage your time wisely. What you want to do may not always be possible, and sometimes you will have to make sacrifices in your personal life to get to where you need to be in your business life.
There can be a downside to this that you need to control from the outset – the urge to work all hours to get your business up and running. Be careful not to fall into the trap of working excessive hours and burning yourself out. There will be no-one there to stop you or to question how long you have been working; this can be a real problem. So, you need to set hours and stick to them – don’t answer work emails, calls and don’t return to the computer for work purposes once your working day is complete.
Taxation and VAT
There are a few different types of companies and formats that a business can take. For example, a limited company is a company you own and control that carries out the business for you. A partnership is just what the name suggests – you and at least one other person jointly running a business.
Many people start out as a sole trader which means you are classed as your business itself and self-employed. When you are self-employed, you only have to pay income tax twice a year, unlike the employed person who pays it every month. Of course, this means you need put money away for your taxation costs to avoid running into financial difficulty later down the line.
Part of being a business means you can claim for a host of costs that you pay out to run the business against your income to then pay less tax. Any goods or services you use solely for your business can be deducted from the income you make, while capital allowances are for more significant items such as a company vehicle or a computer. You can even claim for the interest on a loan if it is for the business.
National insurance and VAT
As someone who is self-employed, you have to pay two types of national insurance – Class 2 and Class 4. Like income tax, there is a threshold, and you only need to pay it when you pay taxation, but you should always be aware of how much you owe. You can also look at becoming VAT registered, which is compulsory anyway once you reach a certain threshold.
Work with multiple clients
It is great to build a relationship with a client, to work with them for a period and to get to know them. Another advantage of being self-employed is that you can work with more than one client, which brings fun and variety to the working day. It also gives you a chance to build a portfolio and a bank of testimonials from different clients to help develop the company.
You also have the power to say ‘no’ to someone if you don’t think they are a good fit for your company and this is an important skill to learn. Not everyone who approaches you will be the right client for your business, and it is paramount to learn to trust your instincts. Also, have a process in place to help weed out potential problems – asking questions is a good thing to do before committing to a job and can save unnecessary stress and upset down the line.
No co-worker dramas
If you are working by yourself, you are free from another common source of stress in the workplace – co-workers. We’ve all been there – the colleague who complains or doesn’t pull their weight and criticises everything. Or, on the other hand, is unrealistically enthusiastic about everything. This type of colleague can make life difficult and tiring.
But as a self-employed person, you don’t have to deal with this. If you do reach the stage of taking on staff, you are in control of who you hire, and you can spot the people that might cause such disharmony beforehand.
Downsides of being self-employed
There are a lot of factors to consider when becoming self-employed, as you can see. But let’s not pretend all is rosy – there are some downsides to take into consideration too.
Lack of holidays and sick pay
One thing to remember – you are your business, and if you don’t work, then there’s a good chance the work won’t get done. You won’t get paid for holidays or sick pay, and this could end up costing you money as you might need to hire someone to do the work for you if you can’t. So always consider this before going self-employed.
While these costs can be offset against your tax when they are for the business, you still have to pay them in the first place. It would be pretty naïve to think you can run a business without any expenses – the reality is, there will always be some form of overheads. They may be costs incurred to operate a website to get business in, costs to win clients through online platforms, costs of materials and equipment – the list goes on.
Paperwork and admin
Paperwork and admin duties are also your responsibility unless you want to hire someone to do this for you. You can get some great software to help with elements such as bookkeeping and storing all of your paperwork on the cloud. But remember that you are responsible for it all, especially for HMRC.
You are also responsible for learning about cash flow, ensuring that your business remains solvent and you can cover your expenses. Working with an accountant is a wise choice if you don’t have these skills yourself. Cash flow problems are one of the main reasons why the self-employed run into trouble – late payments, periods of no income and other cash flow difficulties.
When you are the business, if something goes wrong, you are responsible. This will include financial difficulties and legal problems. It may be worth considering liability insurance, and this might be compulsory depending on your industry. Liability insurance protects you in the worst-case scenario. Remember, four in ten start-ups fail within their first five years, so preparing for the worst-case scenario is always advisable.
Being self-employed isn’t for everyone, but more and more people are reaping the benefits, outweighing the bad with the good. As this number continues to increase, there is more help and advice to help you along your way. The failure rate of businesses remains high but, as people become educated on what self-employment entails, it enables people to prepare, ensuring it’s a lifestyle they can adapt to. Thus, giving you a better chance of succeeding and not becoming another negative statistic.