Are you thinking of scrapping your 9 - 5 job and working for yourself instead? Whilst this might seem really appealing and something you have always dreamed of doing, read on to find out if this is right for you.
Ditching a secure job is a big step so please consider all the pros and cons so that your decision is an informed one.
The advantages of self-employment
Income is not restricted - As an employee your income is dictated by the salary set by your employer. Working for yourself means your profits are directly linked to the amount of work and effort you put in. As your business grows, you can employ others to help you which means your potential to earn profit is unlimited.
Having the ability to utilise your talents - Working an employee often restricts your ability to use your flair and talent as the work you do is often restricted to your job title. Many businesses start as hobbies, giving opportunities to earn money from what you enjoy doing.
Tax advantages - The rules for deduction of expenses are much more generous for the self-employed meaning that expenses such as equipment, advertising, business travel etc. will reduce profits, lowing your tax bill. National Insurance rates for the self-employed can also be more favourable than they are for employees.
More control over working hours – Employees’ working patterns are dictated by their employer whilst working for yourself gives you much more control over when and how you choose to work. Often this can give you a better work-life balance as the hours you choose to work can fit around personal and family commitments.
The drawbacks of self-employment
Reduced financial stability – Becoming self-employed will mean giving up your regular salary which is reliable and consistent. The income from self-employment can be volatile and unpredictable. Without a financial cushion, budgeting and financial planning can be challenging and stressful, particularly early in your business journey.
Risk – As a self-employed individual you alone are responsible for the success or failure of your business. This will involve some level of risk which might not be right for everyone as there is no safety net if things do not go to plan.
More complicated - many employees do not need to file annual tax returns. The income from self-employment needs to be reported on an annual self-assessment tax return so records of income an expenditure must be kept. Where annual sales exceed £85,000 you will also need to register for Value Added Tax, keep digital records and submit quarterly VAT returns to HMRC.
No employee benefits - As an employee, there are a range of benefits you might have, depending on your role. Some examples are sick pay, holiday pay and employer pension contributions. Some roles have enhanced benefits such as private healthcare, company cars etc. Self-employed workers do not enjoy these benefits.
Taking the step to become self-employed
One way into self-employment would be to start trading part time alongside your employment. This would give the opportunity to test the market whilst retaining your secure income. However, depending on the type of business you intend to go into, this might not be an option.
The decision to leave employment will be largely dictated by your own circumstances and ambitions. This decision is not one to be taken lightly. Planning and research are key to giving your business the best chance of flourishing. Having suitable finances in place at the start, weighing up your competition, defining who your target customers are, working out how you will market your business, your web presence and what route you will access your customers are all key considerations you need to think about.
We strongly believe fledgling businesses deserve high quality accounting and tax advice. Having access to professional advice and support from the outset gives your business the best chance to flourish. Please get in touch with our director, Heather Langtree, who will be pleased let you know what support we can offer to support you from the beginning.