The UK has a long history of entrepreneurship and self-employment. The country is home to some of the most successful business people in the world, who took the massive risk of going it alone and reaped all the rewards for themselves. Self-employment has so many benefits, as it gives you more freedom about how and when to work, and can also potentially earn you a lot more money than if you are working for someone else. However, before you embark on your new career as a freelancer or small business owner, there are many factors which need to be taken into consideration.
In this article we will look at the reasons people choose self-employment, the practical things you will need to consider, and what the main pros and cons are.
Why do people decide to become self-employed?
People decide to become self-employed for a variety of reasons. Some people enjoy the control and independence that comes with being their own boss, while others choose self-employment so that they can choose their own working hours and conditions. They may want to cut down on their commuting time, or make more time available to spend time with their families.
For some people who have been laid off or are struggling financially after leaving their previous job, it may feel like there’s no other option but to become self-employed. In times when unemployment is high, it can often seem like the best option because there is so much competition for available jobs.
Entrepreneurial-minded people may choose to go it alone because they have always dreamed of running their own business. There are also those who want to cut down on their commute time by working at home instead of driving into the city every day – this type of move can make sense for commuters living outside major cities where affordable housing options exist close to their place of work.
How can you choose the right niche?
A huge part of successful self-employment is choosing the right niche for your business. When you’re first starting out, it’s easy to think that everyone needs what you have and all markets are created equal; but in reality, there will always be some niches which do better than others. That’s where a little research goes a long way and can prevent things from going wrong straight off the bat.
Here are some of the factors you need to consider when choosing your niche:
Your Skillset
The Existence/Size of a Market
Competition
Your Financial Situation
Levels of Investment Required
What are the main benefits of being self-employed?
The main benefits of being self-employed are the opportunity to make more money, control your own schedule and work on what you enjoy. Self-employment can be a very rewarding experience because it can give you the freedom to pursue your passions without having to answer to anyone.
Many people choose self-employment because they have the potential to make more money. For example, freelancers are often able to make more money than they could in traditional employment because freelancer rates can be much higher than a normal salary. Some people even choose to do a part-time side gig as a way of supplementing their regular income or to achieve their financial goals which may not be possible through their normal salary alone.
Self-employment can also provide more flexibility with hours so you are able to control your own schedule. For example, some freelancers work during their child’s nap time while others might take on a few late night projects in order to squeeze out extra money at end of the month. The freedom that comes from being self-employed allows people who need schedules outside typical nine-to-five routines – like writers, artists and musicians – the opportunity to focus on their work.
If you have a particular area of expertise, self-employment can also provide you with the opportunity to offer your services in specific areas, and build up experience over time, without having to rely on someone else’s schedule or constraints.
What are the potential downsides of being self-employed?
There are a number of potential downsides to being self-employed.
First and foremost, there is the risk that you will fail and not be able to provide for your family – especially with no state or employer safety net in place. This is a big reason why many people with families decide against leaving a stable job and going it alone.
Second, it can be hard maintaining a healthy work/life balance when all the pressure is on your shoulders to make money. This can also be a problem when you are sick or want to take some time off because you will still need to make money with nobody to pay you sick leave or vacation time.
Third, the financial burden can be too much for some people to take on. There are investment costs and initial outlays with self-employment that you may not have the funds for, and which could lead to a lot of stress and difficult decisions in order to keep your business afloat.
Finally, it is more difficult to get benefits like pension. Usually self-employed people have to provide for their own retirement and may need to open a SEP IRA or other type of account in order to save. As you work for yourself, there will be no employer to match your contributions.
What kinds of self-employment opportunities exist?
There is an abundance of opportunities available when it comes to being self-employed – from freelance work like graphic design or writing, to opening a small personal business such as running your own restaurant or social media consultancy company.
Freelancing/Gigging – Freelancers typically find work through marketplaces like Upwork where they can offer their services for anything from graphic design to data entry. They work on a project-by-project basis and are able to set the price they want. Freelancing is perfect for people who have skills but don’t need or want full-time employment, such as those with family commitments, or who can make more money going it alone than committing full time to one company.
Niche Businesses – Niche businesses make up an often overlooked sector of self-employed individuals, with many successful small business owners starting out by selling items online like handmade jewellery or second hand clothes, before expanding into fully fledged businesses! These niche entrepreneurs come in all shapes and sizes, which means there’s something available no matter what you’re interested in. The beauty of this kind of self-employment is that it’s usually possible to start with little more than a laptop and a dream.
Corporate Flexitime – Some businesses are considering going the self-employed route by hiring their own employees on flexitime arrangements. This provides many benefits for both employers and employees – workers can set their hours as they please, while companies benefit from retaining talent without paying top dollar or being burdened with long-term commitments.
You will need to consider your skillset when you’re deciding which avenue is right for you but think carefully before ruling out any possibilities because there’s always more than one way to make money.
How do you register a small business or as a freelancer?
There are a few ways you can register your small business or freelance work with the UK government.
The easiest way to start is by registering as self-employed at Companies House, which will give you an Individual Company Identification Number (ICIN) and access to HM Revenue & Customs (HMRC). You’ll need this ICIN number for other registrations such as VAT, PAYE, National Insurance numbers etc.
This registration process usually involves filling in an application form on their website and paying £20. Once received, they will send you documents like company seals that confirm your status of being registered as self-employed/small business owner. You will then have 30 days from when these arrive to provide the authorities with a physical address where they should be delivered.
If you want to register as a freelancer, then the process is fairly similar and involves filling in an application form online on HMRC’s website with your details. They will send you a declaration of self-employment which should be signed by yourself and kept for your records.
The information you will need to provide includes:
What you will be doing
Your business’s name
How many hours a week the work is expected to take up
Whether or not there are any employees, who they are, and what their salaries are.
How do you manage the finances of being self-employed?
There are many different aspects to managing the finances of being self-employed, but in general you can expect most weeks to include a wide range of tasks.
These might include:
Managing the day-to-day business expenses and bill payments, including taxes, salaries, and pension contributions.
Keeping track of invoices that have been sent out and those which need chasing up.
Paying subcontractors for their work such as designers, writers or consultants.
Making necessary purchases for your business such as new stock, office supplies or equipment repairs.
Sending clients reminders about overdue invoices.
Self-employed individuals may also be required to take out their own insurance policies for things like car, home and travel cover.
These are just some of the financial tasks which you will be responsible for, but they give you an idea about the type of day-to-day work that goes into running a self-employed company. What’s more, it is often necessary for these tasks to be done on top of other responsibilities such as managing employees or dealing with customers and their queries. This can lead to some people feeling overwhelmed by everything they need to do each week in order keep things ticking over smoothly.
How can you make the situation easier?
If this sounds like something which may worry you then there are ways around it.
For example, you could hire an accountant on a temporary basis to help you when things start piling up and causing you stress. It may also be worth thinking about outsourcing certain aspects of your work that are not within your skillset or that of your employees so that you can focus on what’s most important for your business.
As long as you have enough money to pay for these extra costs when necessary, it should still work out cheaper than employing someone full-time.
What tax and national insurance considerations need to be made?
In the UK, self-employed workers are responsible for their own taxes. This means that you have to pay income tax and national insurance contributions at the end of each year on money earned. A variety of deductions can be made against this income, including business expenses that would not normally be deductible if you were an employee rather than running your own company.
Unlike employees who usually receive benefits such as pension payments or free healthcare out of their gross salary before taking into account national insurance contributions (NICs), the rules around NICs mean that there is no entitlement to these types of benefits when you are classed as self-employed. This means that you may need to consider private healthcare, life insurance, and retirement plans.
Since there is no employer taking responsibility for these NICs, it is important that you pay your contributions on time and in full. If you do not make these payments, then penalties could apply.
To sum up…
The benefits of being self-employed are many, but so too are the risks. It is important to do your research and know all parts of your business inside out before deciding to go it alone. Make sure that a market exists for what you are planning, and that you have the knowledge, experience, and skills to compete in that market. If you get it right, the financial benefits can be huge, and you will have far more flexibility and control over your life. Get it wrong, however, and self-employment can be potentially incredibly damaging. Make sure you take everything in this detailed guide into account before your start your journey to self-employment.
