Becoming self employed: Things to consider

Are you thinking about becoming self employed? If you are there are a few things you should consider before you take the plunge into the life of self employment.

Your working rights

UK employment law protects the rights of employees so that employers can’t take advantage of them. However, if you become self employed you are working for yourself so the same rights won’t apply. For example, you won’t get sick pay or holiday pay, so you will need to adjust accordingly. Also maternity, paternity and shared parental leave rights work differently if you are self employed. Make sure you are fully aware of the working rights you may lose if you become self employed.

Your mortgage and finance

When you are self employed it can be more difficult to get a mortgage or loan, so if you’re planning to move soon with a new mortgage arrangement make sure you look into this first. Mortgage lenders will often want to see your self employed accounts for at least a year, sometimes more, to confirm that you earn a certain amount on average as per your application.

Cashflow

Even if you already have work lined up, as a freelancer for example, you won’t usually be able to invoice until the end of your first month and it could take another month until you’re paid – so before you go self employed think seriously about how you’ll pay the bills in the first few weeks and months.

You may also have some business expenses at the start which will add to your financial pressure at the start of your journey. For example you might need to buy tools, software or technology.

There are various ways you can get help with finance, including small business loans and start-up grants. The Government has a finance support guide where you can explore these options.

Tax

It is your responsibility as as self employed worker to manage your own income tax and national insurance.

Once you become self employed you need to register for self-assessment with HMRC. At the end of your first tax year (5th April), and every subsequent tax year, you will need to file a tax return.

In order to do this it is very important to keep accurate records of the money you earn from the work you do, and what you spend in terms of business expenses. If finances aren’t your strong point, seek out a friendly local accountant. Many offer a very reasonable rate for completing tax returns and will be able to advise on a range of ways you can save on tax, such as what you are allowed to claim as expenses and so on. Here are some tips for filling in your tax return.

Your pension

Once you become self employed you need to make a decision about whether to continue paying into an existing pension, or create a new one.

It is advisable to seek advice on this from an Independent Financial Advisor. You can find someone local to you that’s approved by the Financial Conduct Authority here.

Insurance

If you’re providing professional services and advice it may be a good idea to research Professional Indemnity Insurance. If you have customers coming to visit you, you might require public liability insurance.

If you intend to work from home, then it’s also a good idea to double check what your home insurance covers. Will it cover damage or loss to business equipment? If not, it is a good idea to extend your cover. Your insurer will be able to provide advice.

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