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Published 12 April 2024
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Going Self-Employed: What You Need to Know

Making the shift from regular employment and a PAYE salary at the end of every month to working for yourself is a big decision no matter what your circumstances. Here are the essentials to consider carefully before taking that leap into self-employment.

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Many of us dream of turning our backs on traditional employment and working for ourselves. In the modern age, this dream is becoming a reality for more and more people – as changing attitudes and technological developments create a revolution in remote working and self-enterprise.

In fact, data from the Office for National Statistics (ONS) showed that the number of self-employed workers in the UK grew slowly but steadily between June and November 2023. The latest data from IPSE indicates that compared with 2022, 3% more Brits have gone self-employed. Provided you’re prepared to put in the hard work that the lifestyle requires, there’s no reason why you can’t join them and work for yourself.

But the decision to become self-employed can be daunting, especially if you’re used to a steady income and all the perks of a regular pay cheque. This guide aims to offer an insight into what it’s really like to be a self-employed individual, so you can get your new life as your own boss off to a smooth start.

After the 2008 financial crisis, self-employment arose as a tempting option for many of those who found themselves without a job. People everywhere realised that creating opportunities themselves was a real alternative to desperately hunting down employment opportunities that no longer existed.

According to the ONS, the number of self-employed people grew from 3.3 million in 2001 to a peak of 5 million at the end of 2019. By March 2022, however, that figure had fallen back to 4.2 million – a decline that coincided with the Covid-19 pandemic.

Though there’s little doubt that becoming self-employed can be a great move, it won’t work for everyone, and it’s important to consider whether you’re really ready to reject the security of employment for the sometimes cold realities of going it alone.

  • Will I be able to afford to have time off?
  • What happens if I am sick and can’t work for a period?
  • Can I afford to balance self-employment with childcare?
  • Can I do without employer pension contributions?
  • Can I do without benefits like private health care and life insurance?
  • Can I motivate myself to work hard without a boss?

Pros and cons of becoming self-employed

For anyone used to having a regular income, paid holiday, sick pay and all the legal benefits of traditional employment, going self-employed can be intimidating. While you gain the freedom to choose when and how you work, you also need to protect yourself to avoid being caught short.

Though these financial constraints must be considered, they needn’t put you off altogether. Providing you’re willing to meet the necessary costs through your own earnings, working for yourself can still be a much better option than remaining employed. In fact, the freedom and work-life balance benefits of being self-employed might mean you’re less desperate for time off in the first place.

There are many advantages to working for yourself, then, but the main ones can be summarised as follows:

  • You’ll have the freedom to work when, how and where you choose.
  • You’ll have greater levels of flexibility in your working life.
  • There is the potential for great job satisfaction and personal motivation.
  • You can abandon the time-consuming and costly commute.

When is the best time to go self-employed?

The big thing to consider before you make the leap is your own life circumstances and your financial obligations. This will depend on your individual situation, but there are some obvious points in life at which self-employment might make more sense than others.

Unemployed

You’ll need to consider your financial stability, as going self-employed for the first time is a leap of faith, and success isn’t guaranteed. However, if you’ve been unemployed on a long-term basis, then perhaps it’s a good time to give this alternative a go if you’re reaching the end of your tether with job hunting.

Starting a family

A large number of new parents turn to self-employment to create a better work-life balance when returning to work. Working for yourself enables you to dictate your own working hours to fit around the nursery or school pick-up and holidays. But remember your financial responsibilities are also greater, so plan carefully.

Graduated college or university

A growing number of 16- to 24-year-olds now take control of their own future by working as sole traders, in partnerships or by starting their own businesses. The shortage of job opportunities for this demographic is well-publicised and, when armed with a youthful spirit of adventure, many have started to see that it can be empowering to work for yourself.

Thinking of retiring

Instead of retiring, those over the age of 65 can continue to make money on their own terms and work for themselves, while enjoying some of the benefits of traditional retirement.

Self-employment tax

Tax for self-employed workers is one of the more complex aspects to consider. Your self-employment tax obligations will vary depending on whether you are running a limited company or working as a sole trader.

If you are considering the former, you may need an accountant to advise you, as you’ll be responsible for completing your personal tax returns as well as those for your company. This can be a time-consuming part of running a business. However, an accountant can be an expensive luxury – so bear these potential costs in mind.

As part of getting setup you may need to establish whether you are employed or self-employed. Sounds confusing, you’re self-employed if you work for yourself surely? Well perhaps not when it comes to tax if you’re operating a limited company. Find out more online using the government’s employment status checking service.

If you’re operating as a sole trader on the other hand, as many self-employed freelancers do, you’ll just need to complete an annual self-assessment tax return, which many sole traders manage themselves. To do this you will need to keep detailed records of all the money that comes in and out of the business each month.

Potential taxes you may need to pay as a self-employed person:

The essentials of self-employed life

To run virtually any kind of business, you’ll need a decent computer or laptop, a reliable internet and phone connection and access to a comfortable and appropriate space from which to work. Relying on your local café’s wi-fi and your smartphone probably won’t cut it in the long term – so invest in the right basics before you begin.

Rather than tackle the pitfalls of tax and paperwork alone you might wish to work with an accountant.

If you find filling out your tax return challenging, you might want to hire an accountant or tax adviser. Finding someone you trust and are happy to work with early on will give you access to the valuable expertise you’ll need to meet your financial obligations and organise your accounts.

If you can’t work from home, you’ll need to track down and secure the right office or premises. Co-working spaces are an increasingly common option for today’s freelancers and sole traders. These charge a monthly subscription for the ability to share space with other freelancers and entrepreneurs.

» MORE: How to find the best office space

Self-employment essentials at a glance:

  • the right premises
  • business insurance
  • laptop
  • internet
  • phone
  • accountant

Business insurance is also well worth looking into to protect you against mishaps in the course of business. Some professions will require insurance to be in place – sometimes to a minimum level – before clients will be comfortable working with you. Don’t see this as a luxury – it’s something you need to think through and research carefully.

Lastly, and perhaps most importantly, having prospective clients is an obvious but major advantage before you make the leap to self-employment. You might have contacts from a former job that you can connect with on LinkedIn or through other social media or even with a good old-fashioned phone call. Alternatively, you can start to drum up business with some social media marketing and a simple business website. Networking can also provide an opportunity to do some market research or pick up tips from other business owners.

With a little determination and a great deal of motivation, self-employment can be a great career choice for a huge variety of people in different businesses and trades. Are you ready to make the leap?

Image source: Getty Images

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