In the UK, self employment is at its highest level since records began almost 40 years ago. Some analysts have suggested this trend has come about in response to an economic slump, which has caused the number of traditional employee jobs to fall or flatline across the country. For many, the flexibility and freedom of self-employment are the key draws.
Whatever the reason you are thinking of turning to self-employment, here are the things you should always bear in mind before you settle on your decision.
Taxes and accountants
If you’re self employed, you are responsible for calculating and paying the correct income tax. That means accurately declaring all your business income, and declaring business expenditure in order to receive VAT refunds.
Depending on the size and scope of your business, it can be difficult to ensure you keep accurate records of all the money that goes in and out of your account. However, keeping on top of this is crucial failure to declare income can lead to incorrect tax bills, and result in heavy penalty fines from HMRC.
With this in mind – and your livelihood on the line, you might prefer to trust a tax expert. Luckily, there are plenty of accountancy firms that offer self assessment services and bookkeeping advice for self-employed workers, to help you get everything right.
Finding an accountant doesn’t have to be expensive or difficult. There are lots of factors you should bear in mind when trying to select a service which best matches your business. Do you want to use this accountant for a one-off tax return, or would you want to start using their service on a yearly basis?
Firms like 3 Wise Bears provide accountants for freelancers, contractors and small businesses, which means they will be able to give the right support and guidance for your tax assessment needs. Other firms like QuickBooks offer accountancy software for your personal use, streamlining the process to make life easier.
Location and business rates
If your small business is operating from an office,store or another kind of commercial premises, you will have to pay business rates—monthly taxes based on the value of the property.
As leading consultant Jerry Schurder points out, recent changes to the business rates system have left some companies with very large business rates bills. As a small business owner, high property tax bills could make or break the bank. Fortunately, the difference between paying business rates and avoiding them altogether could be as small as choosing to operate from your living room, not a property-based store.
If you want your small business to have be based in a professional premises, you will need to pay the very literal price of business rates that comes with it.
Lack of paid holiday, sick leave and job security
Self-employment comes with a lot of perks; you are your own boss, after all. But depending on your outlook there can be some serious downsides.
The law requires employers to give their workers paid holiday, sick leave, and a paid notice period alongside many other statutory workers’ rights. These are things you may not get if you are self-employed. As a freelancer on a day rate, if you can’t work, you won’t get paid, whether you are ill or on holiday.
As a small business owner, if you employ anyone, you must legally grant them these statutory workers’ rights. If you are the sole employee, however, if you cannot afford to stop working for a week at a time, then you will be forced to go without these luxuries. For some, this is too big a sacrifice, but if the positives of self-employment outweigh these negatives, you have nothing to worry about.
For the self-employed, several kinds of insurance are advisable. Income protection and critical illness cover are designed to help with the aforementioned lack of sick leave. These are both long-term policies which can replace your post-tax income should you become too ill to work.
If you are currently covered by private health or life insurance thanks to your employer, the Money Advice Service says you might be able to continue your coverage with the same provider if you make an enquiry.
Aside from this personal insurance, there are various forms of business insurance that you might need if you are running a business from home. You can find a comprehensive list of business insurance from The Money Advice Service In short, you will need to cover any equipment or vehicles you may use, and you may need insurance for travel, legal costs, credit, product liability, and professional indemnity (in case you make a mistake that causes a client to lose money).