Roughly 4.7 million workers in the UK are self-employed, choosing to be their own boss.
Self-employment can offer you many financial rewards, and the freedom to run your own business exactly how you want.
Whether becoming self-employed is the next necessary step down the career path that you want to follow, or you desire the lifestyle, then you’re going to want to know the pros and cons of going it alone. It’s a dream which is possible to make a reality if you do it right.
What is self-employment?
The pros of going self-employed
- Freedom to run your business exactly how you want
The freedom which comes with entrepreneurship is one of the biggest and most attractive advantages of going self-employed.
For many, the reality of going to work is sitting in an office and taking orders from your boss. The main reason people become sole traders or freelancers is to become their own boss.
In comparison to being employed, being self-employed means you choose which contracts you want to take on, taking charge of all your own business. You no longer have someone watching over your shoulder, telling you what to do.
Every decision is yours.
- Certain financial rewards
Being self-employed can significantly lower your tax bill. You can claim specific benefits, allowances and reliefs if they are for your business. These may include office costs (e.g. stationery or phone bills), advertising and marketing (e.g. website costs) and travel costs (fuel and bus tickets). There are specific tax reliefs available which can help to increase your profit and lower your tax bill.
On average, freelancers earn 45% more than those who are traditionally employed. So, in many lines of work you’ll also have the opportunity to earn more than if you were employed and paid hourly.
You’ll also present more value to the client because they only pay you for the time you work and don’t have to pay you any in-work benefits, such as annual leave or sick pay.
- Flexibility of hours
Working from home is a possibility for some types of work, meaning you can fit your schedule perfectly around your life.
You may have children and want to spend more time bringing them up, but don’t want to have to sacrifice working.
You may be more productive working from the afternoon and late into the evening, rather than from early in the morning. The beauty of being self-employed means it’s possible to choose when you start and finish work. Although, it’s important to remember you only get out what you put in.
So with self-employment you get to create your own schedule. How dreamy does that sound?
The cons of going self-employed
- Paying your own taxes
Yup, if you’re self-employed, you’ll have to deal with all of your own national insurance contribution (NIC) and income tax. This includes doing all your own paperwork and filing your tax returns to HM Revenue & Customs.
If you are self-employed or a director of a company, or receive any other non-taxed income, then you’ll need to file a self assessment tax return. For someone self-employed, you’re expected to provide records including the details of all your sales and takings, and a record of your purchases and business expenses.
You’ll have to pay your tax and NICs on the 31 January following the end of your tax year. However, HMRC will ask for payments on account for the following year’s estimated tax – on 31 January and 31 July each year.
Sorting your own taxes can be incredibly time-consuming, so you may want to outsource your accountancy to save time.
- Less job security
Unlike a regular nine-to-five employee, working under the orders of someone else, you don’t have a secure set of working hours or days. It’s therefore your responsibility to ensure that you have enough work to guarantee you have a reliable source of income coming in every month.
You’ll need to be active in seeking potential business opportunities. It may be stressful at times if you can’t find any work, so be ready for when business is quiet.
- Fewer benefits
Unfortunately, while there may be possibility to lower your tax bill, you won’t be entitled to basic employment rights.
It’s important to be aware of this. The rights which you will miss out on are:
– sick pay
– annual leave
– maternity leave
– minimum pay
– working time rights
– the right to join a union
– health and security protection
– protection from discrimination
You’ll also not be covered by workplace pension schemes, which may include pension contributions from an employer. So you’ll need to make your own pension arrangements if you do choose to go solo.
Being self-employed and running a successful business can be extremely rewarding. The positives of the lifestyle is attractive. Of course there are negatives, so you need to be sure of your decision. But we can help you out!
Originally featured on the Mazuma website.