Are you about to take the plunge into self-employment? Or exploring what’s involved to make that big decision? Either way, there are some key considerations for anyone that’s becoming self-employed. Let’s explore them…
Depending on what your new role is and how it works, you may need to think seriously about how you’ll pay the bills in the first few weeks and months. Even if you already have work lined up, as a freelancer for example, you won’t invoice until the end of your first month and it could take another month until you’re paid.
If you need to make some investments for your business upfront that will add to the pressure. You might need to build a website, buy tools or get equipment. Should cashflow be a concern, there are various options to help with finance, including small business loans and start-up grants. A good place to start exploring these is the Government website’s finance support guide.
Once you’re self-employed you need to take responsibility for managing your income tax and national insurance. You must register for self-assessment with HMRC, and following the end of your first tax year (5th April) you need to file your tax return. Filing a return is not as complicated as you might think, but it’s essential to keep an accurate record of the money you receive and what you spend as the months go by. It’s helpful to open a separate bank account that you use only for work. If finances aren’t your strong point, seek out a friendly
local accountant. Here are some tips for filling in your tax return.
In an employed role you will automatically have the option of a pension. Once you’re self employed you need to make decisions about whether to continue paying into an existing pension, creating a new one or pursuing another way to finance your retirement. Everyone’s situation is different, so this is something you should speak to an Independent Financial Advisor about. You can find someone local to you that’s approved by the Financial Conduct Authority here.
Many self-employed people work from home, or at least use their home in the initial stages of setting up their business. Bear in mind that your home insurance might not cover you for damage or loss to business equipment. Speak to them and see if you need to extend your cover.
There are other types of insurance that could apply to your business. If you’re providing professional services and advice you may need Professional Indemnity Insurance. Or if you have customers coming to visit you, you could require public liability insurance. A financial advisor can help you navigate what’s needed.
Bear in mind that it can be more difficult to get a mortgage or loan if you’re self-employed, so if you’re planning to move or remortgage your home, do some research first. Often a mortgage lender will want to see certified accounts for at least a year, sometimes more, to confirm that you earn what you say you do. If you’re in a complicated financial situation, now might not be the best time to opt for self-employment.
There are some rights that might affect you differently as a self-employed person. Note that maternity pay is generally only applicable to women employed by a company, although there are some exceptions. You can read more about maternity rights here. Most other employment rights don’t apply, either. For that reason, it’s important to state the rights and responsibilities that apply to you and your clients in any contracts that you hold with them. Becoming self employed can create a few more jobs to do and things to consider, but there’s lots of advice and support in our self-employment section. And, as most self-employed people will tell you, it’s well worth the additional hassle!