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Being Self-Employed - Is It Right For Me?

There are pros and cons to being self-employed, and when you're weighing up self-employment against employment there are a number of things that you need to consider, including:

  • are you clear about how you’d get clients or customers?

  • do you have some money to set yourself up?

  • would you be able to cope with periods of little or no income?

  • do you feel confident about managing your own business, for example managing cashflow, keeping thorough records and completing tax returns?

  • have you thought through the impact of losing employee benefits, for example holiday pay, sick pay, and employer pension contributions?

  • if you were self-employed, would you miss working alongside colleagues?

  • do you have a space where you’d be able to work, and any equipment you need, or do you have budget to buy it?

  • do you have any life-changing events to take into account, for example an upcoming house move, wedding or new baby?

Going Self-Employed For The First Time

When you’re going self-employed, there are several things you need to do, including telling HMRC that you’re self-employed for tax purposes, thinking about your business structure (which has an impact on the paperwork you’ll need to complete), and sorting out insurance.

The Advantages of Being Self-Employed

There are plenty of perks of being self-employed, and this list isn't exhaustive:

  • you have more flexibility and control, so it may be easier to fit your work around other commitments and responsibilities, including childcare

  • your work can be more varied, as you may be working on several different projects for different clients at any one time

  • you can explore your creative and entrepreneurial side as you build your own business

  • you can deduct certain costs - travel and some utilities bills, for example - from your income when you’re calculating your tax liability

  • you may have the potential to earn more money, as day rates for self-employed consultants and freelancers tend to be much higher than salaries

  • you should be able to ditch your commute, as you’re likely to work from home, or from your own business premises

The Disadvantages of Being Self-Employed

It’s important to take into account the disadvantages of being self-employed too, in particular the risks and costs that come with self-employment, for example:

  • finding clients or a route to market can initially be challenging

  • there are likely to be some start-up costs, so you may need some money to get started

  • your income isn’t guaranteed, which can sometimes make it hard to keep up with rent or mortgage payments, loan payments and living expenses

  • you bear the responsibility for the failure or success of the business, so you don’t have much back-up if things go wrong

  • if you take a holiday or can’t work because you’re unwell, you won’t get paid

  • it can be more difficult to get approved for renting property, taking out a mortgage or getting a loan when you’re self-employed

  • when you’re self-employed, it can be difficult to separate your home life from your work life, and to get a good work-life balance

  • if you’re working on your own a lot, being self-employed can be isolating

  • you need to deal with the admin side of your business, which involves bookkeeping and complying with regulations

Going Self-Employed Checklist

When you go self-employed, you’re effectively setting up a business, even though you might not see it that way. This means that you need to decide on a business structure.

We've taken an in-depth look at setting up as a sole trader - usually the simplest business structure to choose when you go self-employed. However, you may also decide to incorporate as a limited company.

Starting Up As A Sole Trader

If you’re going self-employed in the UK as a sole trader, these are some of the things you need to do:

  • tell HMRC that you’re self-employed, so that they know you need to pay tax through Self Assessment and pay Class 2 and 4 National Insurance contributions. Go to the government’s website to register - www.gov.uk/login-in-register-hmrc-online-services

  • set up a business bank account

  • establish a process for recording your profits and evidence of your business expenses. This will make it much easier when it comes to completing your HMRC tax return

  • if you’ll be working from home, check your tenancy agreement or mortgage agreement to make sure you’re not contravening any terms. You may need to notify your landlord or mortgage lender

  • sort out your insurance – professional indemnity insurance and public liability insurance are the main types of business insurance to consider, but there are plenty of other covers too. And if you’ll be employing anyone, you’re usually legally obliged to have employers’ liability insurance.

  • think about your pension – since you won’t be paying into a workplace pension any more, it may be a good idea to set up a private pension so that you’re still putting money aside for retirement. Although you won’t benefit from employer contributions, you’ll still get government contributions into your pensions in the form of tax relief

Paying Tax When Self-Employed: How Much Will I Pay?

How much tax you’ll pay as a self-employed person will depend on how much money you’ve made and the ‘allowable expenses’ you’ve incurred in the course of your business. Certain business-related expenses can be subtracted from your income when you’re calculating your taxable profit.

The tax-free personal allowance and the tax bands are the same for self-employed and employed people, so for 2020-21 you can make up to £12,500 before you need to pay tax. You’ll then pay the basic rate of income tax (20 per cent) on income up to £50,000. The higher rate of 40 per cent applies to income over £50,000, and on income over £150,000 you pay the additional rate of 45 per cent.

How We Can Help

We here at Revelation Accountants Ltd have been working with self-employed peoples for over 25 years, and have a wealth of knowledge and advice to help you get started as efficiently as possible,

To view our various packages, please visit www.revelationaccountants.com, or feel free to give us a call to find out more on 028 9071 1200

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