It’s fair to say that work in the UK is
changing. For decades, workers all over the country have been restricted to the
confines of the 9-to-5, destined to trudge into the same office building every
morning for 8 hours a day. Thanks to advances in technology, however, employees
are now escaping these strict, monotonous schedules and choosing to work for
The latest figures from the Office for
National Statistics (ONS), show that the number of self-employed workers in the
UK currently sits at around 4.8 million people. This now makes up just over 15%
of the entire labour force, marking an increase of 1.5 million workers in under
two decades as the number of freelancers, contractors and sole traders
continues to grow.
The initial appeal of self-employment is
clear to see, with many workers enticed by the prospect of running their own
business, managing their schedule and ultimately enjoying a better work-life
balance. But working for yourself also involves increased responsibility and a
lack of financial security, so we’ve put together some simple tips to get you
off to the best possible start:
Compare Self-Employment Options
Before you do anything, you need to decide how you want to structure your new business. There are three main self-employment options for you to consider: setting up as a limited company, becoming a sole trader or working under an umbrella company. Each option provides certain benefits and drawbacks, so you’ll need to compare each one to figure out which is best for you.
Umbrella companies, for example, remove all
of the financial administration you have to go through as a sole trader or
limited company, since they calculate your tax and NI contributions before
paying you just like a regular employee. Although this is obviously incredibly
convenient for those without experience in managing their finances, this avenue
also means you won’t make quite as much money.
Your choice of structure will always be
important, since this will have a major impact on your profitability, tax
responsibilities and personal liability. The right structure for you will be
completely dependent on your own circumstances and how you want to operate as a
contractor, with many self-employed workers seeking expert advice to make sure
they’re setting up in the right way.
Registering as Self-Employed
Once you’ve decided how to set up, you need
to let HMRC know that you’re now self-employed. This is a simple process which
involves heading over to the government website and creating a Government
Gateway account. From there, you’ll then need to provide personal details and
further information about your business.
The official deadline to register is 5th
October of your second trading year, but HMRC recommends registering as soon as
possible to make sure you can avoid any future problems. It’s also worth noting
that this isn’t an optional task and you have a legal obligation to register
with HMRC; a failure to do so will inevitably result in a hefty penalty.
Paying Taxes and Claiming Expenses
Depending on how you’ve set up your
business, you’ll be responsible for managing your own finances and claiming
expenses as a contractor. Since this can seem like such a daunting task for so
many self-employed workers (particularly those new to self-employment) will
inevitably hire the services of a specialist accountant, while others will
attempt to shoulder this responsibility by themselves.
Either way, keeping accurate and up-to-date
financial records is a crucial aspect of successful self-employment. Of course,
the amount of tax you pay will depend on how much money you’ve made, but the
standard tax-free personal allowance in the UK is currently £12,500 – and
you’ll pay the typical 20% on annual earnings up to £50,000.
When you’re set up as a limited company or
sole trader, you’ll need to submit tax via a Self-Assessment form, while those
working under an umbrella company will have this automatically deducted as part
of the PAYE system.
Follow Your Passion
The appeal of self-employment often stems from the freedom and flexibility afforded to workers and there is no shortage of new low cost business ideas. Instead of being restricted to rigid office hours and having your workload set by a more senior member of staff, you can now work at times and places which are most convenient for you. Perhaps more importantly, you can also set up a business which lets you follow your passion and concentrate on doing what you do best.
After all, when you care deeply about the
work you’re doing and building on your extensive experience, the quality of
results will inevitably improve. Once that happens, you stand a much better
chance of turning your self-employment journey into a massive success.