“For some people, self-employment can seem like an extremely attractive proposition. In 2021 there were more than 4 million self-employed people in the UK, contributing around £300 billion to the country’s economy. With figures like these, it can be easy to think “why them and not me?”. If not knowing how to get started with self-employment is the barrier between you and this lifelong goal, read our guide to self-employment below.
Should I become self-employed?
There are several factors to consider when it comes to deciding whether to take the leap and register as self-employed. While the appeal of being your own boss sounds like a no brainer at first, the disadvantages might just persuade you to stick to your day job.
The advantages are fairly simple and straightforward to comprehend. Because the only person you have to answer to is yourself, you allow yourself more flexibility in your work, allowing yourself the freedom to commit to other responsibilities and activities throughout the working day. Building your own business allows the free flow of creativity and ideas, whatever the outcome. And, of course, you have the luxury of working from wherever you want, whether this is at working from home with your family or another workspace of your choosing.
Once you are registered as self-employed, you also open yourself up to certain tax and financial benefits, such as deducting travel and utility costs from your income. Furthermore, depending on the industry you are building your business in, self-employed individuals and freelancers can earn much higher salaries than employees. So, with considerably more freedom and the opportunity to earn more money, why doesn’t everybody register as self-employed?
There are several challenges to overcome before you can successfully class yourself as self-employed. You must first bear in mind that while you have more freedom, you are alone in your business, meaning that you must drum up clients or business in your chosen market. The lack of support also extends to ensuring your services comply with any regulations that might be in place. The initial cost of setting up your own business requires you to have a certain amount stacked up, which can put a lot of people off from becoming self-employed. Additionally, though the exciting parts of the business are all yours to take charge of, so are the administration and less fascinating parts of running a company. The uncertainty of success with being self-employed brings with it more risks, including:
No paid annual leave or sick leave.
Often poor work-life balance.
No guaranteed income.
Difficult to be approved for financial commitments.
How To Register as Self-Employed
The simplest way to go self-employed when living in the UK is often to set up as a sole trader. You can also start a limited company, but this will involve more costly steps such as paying corporation tax and registering with Companies House. To become self-employed as a sole trader, you must remember the following steps:
Inform HMRC you’re self-employed: This means that you will need to pay tax through Self Assessment and pay the correct National Insurance contributions.
Establish Records: Profits and evidence of business expenses must be recorded in some way to be referenced on tax forms.
Business Bank Account: There are restrictions on regular bank accounts so you will need to find the right business bank account for your company.
Check Accommodation Terms: If you are planning to work from home, you need to ensure you are not violating any terms in your tenancy or mortgage agreement.
Pension: Without a workplace pension, you’ll need to set up a private pension to build up funds for when you decide to retire.
Insurance: You may also need to acquire self-employment insurance, particularly if you have employees, as you are responsible for other people.
Register as early as possible for self-employment – the deadline is 5th October after the end of the tax year in which you started your own business. You can register online for Self Assessment on the government’s website, which means that you are responsible for calculating and paying your taxes on time. This process is fairly simple, but you’ll need to provide basic personal information, details about your job, and when you started your business. Once registered, you will be sent a letter with your Unique Taxpayer Reference and also receive access to a range of online services with your account.
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By: Richard Edwards
Published: 28th March 2022