Being your own boss, deciding your own hours, deciding your own wage – they all sound like amazing reasons to become self-employed and understandably so. After working for other people, the pull of a self-employed lifestyle can seem like the perfect alternative, but how easy is it really to set off on your own? From understanding the ins and outs of a self-employed life, to the registration and taxes you’ll need to consider, we’re taking a look at how easy it may or may not be to become self-employed.
Is Being Self-Employed Right For You?
First thing’s first, you need to work out whether being self-employed is actually right for you. While the benefits can seem like a no-brainer when it comes to whether it suits you, the realities can actually be very different. While being self-employed does mean that you can do work that you’re passionate about, choose your own hours, work around your other commitments and have more control over your work and income, there are also a number of things that you need to be aware of, including:
- Long hours to keep up with workloads
- Irregular income, particularly at the start
- Handling your own paperwork and records
- Managing your own taxes
- Limited or no employment benefits e.g. paid holiday or sick leave
- Needs a lot of self-motivation
For some of us, we rely too much on a regular income and the holiday pay to be able to go self-employed, and that’s okay. Some lifestyles are more suited to different jobs and work styles. It’s up to you to decide whether self-employment is right for you.
What Type Of Business Do You Want To Run?
If you’ve decided that you do want to become self-employed, the next thing you need to consider is the type of business that you want to run. This isn’t the job or industry you’re in, but instead, the type of company you’ll have. For example:
- Sole Trader – This business structure is one of the simplest – you’ll run your own business as an individual and keep all after-tax profits. Your personal and business assets aren’t considered separate, however and you will therefore be considered liable for all debts.
- Partnership – If you have people you would happily and confidently go into business with, a partnership can be a great alternative to sole trading. You would each have shared responsibility for the business and, through a partnership agreement, an equal or fair share of the profits. All members would be responsible for any debts and each member would need to submit their own Self Assessment Tax Returns.
- Private Limited Company – A private limited company is a legal entity and completely separate from its owners. If you want to start up an Ltd company, you will need to register with Companies House, have a suitable name and address and assign a director (likely you) that will be legally responsible for running the company. You will also need at least one shareholder. You can also expect to pay corporation tax and have to submit annual accounts to Companies House and tax returns to HMRC.
- Limited Partnership – You must have at least one general and one limited partner – the general partner is responsible for the debts and running the business, while the limited partner is only responsible for the amount that they originally invested in the business.
- Franchise – If you know you want to be self-employed but don’t want the hassle of setting up a business from scratch, you could consider a franchise. You will have the benefits of being your own boss, however, will work within a franchise, getting the training and other support available to help make this a success. Examples include Mcdonald’s, KFC, Taco Bell and Anytime Fitness. There are big opportunities, and smaller franchises for those wanting to work within their means to start with – do some research into your local area and the franchises that could be available to you.
Register For Tax
The taxes you may have to pay will depend on the type of business you’re looking to run, however, all self-employed people need to register for National Insurance and for Self Assessment. You’ll pay any tax and national insurance on any self-employed earnings in arrears, meaning that you will pay the tax later than the earnings come in. Unlike a standard employed wage, where the taxes are taken straight from your pay slip. This means you need to be far more careful with budgeting and accounting to ensure you are paying the correct amount at the right time.
Register for VAT
When you first start up your business on a self-employed basis, you may not need to worry about VAT straight away. However, it’s worth noting that as of April 2022, you will need to register for VAT if you have an annual turnover of £85,000 or more. If during the course of the tax year, you believe that you will hit that threshold, you have to register. You can register for VAT even if you don’t reach the threshold – in fact, having a VAT number can make you appear more trustworthy and credible to customers and other businesses alike. You can also claim back VAT on eligible purchases made for your business.
Insurance is a must-have for any business and as a self-employed person, having a good Self-Employed insurance policy will keep you protected. If you’re self-employed but are looking to employ other people, you’ll need to consider Employer’s Liability Insurance as a legal requirement. Public Liability Insurance, on the other hand, isn’t a legal requirement in most cases but is highly advised to ensure that you and your business are protected against claims made by the public. Any injury, illness or property damage caused by your business could be claimed for, so having a self-employed public liability insurance policy in place will ensure you are protected financially against legal fees, damages and other compensatory costs.
Consider An Accountant
Finally, it’s highly recommended that, unless you are well-trained and experienced, you hire a professional accountant to help you manage your business’s finances and paperwork. Having someone on hand who can keep up with changing regulations, records, and financial requirements can give you peace of mind that your business is keeping up with legal needs. They can calculate and manage your taxes and VAT, as well as your annual turnover, employee wages and more. It may be an additional expense to consider, but it’s one that could save you a lot of trouble, time and money in the long run.
For more information regarding self-employed insurance policies and how they can help, our team are always on hand to talk it through with you. Simply get in touch with Ashburnham Insurance on FREEPHONE 0800 1696137.