With redundancies and unemployment rising, more people are considering the opportunities self-employment offers to generate income. For some, managing their own business provides achievement and flexibility, but there are factors to consider before making the move. Before choosing self-employment, you must research and prepare for a new journey. 

Managing your clients, handling unpredictable income and how you will be affected by the loss of employee benefits are some factors to consider with self-employment. While it’s impossible to eliminate all potential risks, being well-informed gives you the best chance of success. 

The latest Recruitment Industry Status Report (RISR) from the Recruitment and Employment Confederation demonstrated the vital role recruitment companies played in supporting recovery for businesses and professionals, with over 22 million contract placements recorded. The recruitment industry contributed over £42 billion of direct Gross Value Added (GVA) to the UK economy in 2021, representing a 22% increase in 2020 and a further rise in pre-pandemic levels.

A Guide to Self-employment

A good starting point is defining your vision and the gap in the market you intend to focus on. Have you determined your process for acquiring clients and customers? Do you have sufficient funds to start your business and to support yourself during periods of little or no income? Where will you work from, and have you got all the equipment to hit the ground running? There are also other factors to consider, particularly in the early days, like the loss of holiday and sick pay, pension contributions and other employee benefits.

When establishing your business, one of the most critical documents is your business plan. This document incorporates your objectives, strategies, marketing and financial forecasts. This information enables you to visualise your goals and identify any potential challenges. 

What are the options for self-employment?

Operating as a sole trader – manage your business individually and maintain all profits after paying taxes.

Operate as a partnership – work as a self-employed individual, but all business partners share the profits and responsibility. Each partner submits a self-assessment tax return and pays national insurance and tax. A nominated partner submits a tax return for the entire partnership.

Operate as a limited company – Register your business at Companies House and create its own legal identity.

The Benefits of Self Employment

Self-employment enables you to focus on something of genuine interest. Typically, self-employed workers have a more varied workload, often working on multiple projects across various disciplines. This added diversity enables the development of new skills and allows more income-generation opportunities due to higher-than-average salaries. Furthermore, if you decide to work from or close to home, you eliminate your commute time and other associated costs. 

Beginning the journey to self-employment 

Firstly, you must register as self-employed with HMRC and pay tax via self-assessment and Class 2 and 4 National Insurance. Ideally, you should create a business bank account and start monitoring all income, outgoings and expenses for tax returns and potential investors. If you decide to operate from home, you must notify your mortgage lender or landlord to ensure you meet all terms. You must also explore business insurance options, i.e., professional indemnity and public liability insurance. Another factor to consider is creating your pension. Explore all offers for the self-employed and determine which option suits you best.

Can I be employed or self-employed?

It’s possible to work as both employed and self-employed, but how you pay tax and national insurance will differ based on employment status. For example, you pay Class 1 National Insurance for employed work but Class 2 and 4 for self-employment. Class 2 National Insurance is a fixed rate, whereas Class 4 National Insurance contributions are determined on self-employment profits.

Self-employment tax

Self-employed people are responsible for their tax and national insurance contributions via a self-assessment. The first thing to focus on regarding tax is submitting your self-employed tax return to avoid penalties from HMRC. How much tax you pay depends on your income and the allowable expenses incurred. Some business-related expenses can be taken from your income when determining your taxable profit. This includes utility bills, council tax and internet. The tax-free personal allowance and associated tax bands for employed people also apply to the self-employed.

Contracting is an opportunity to take control of your career and could be the best decision you make. But, leaving the security of a permanent position comes with risks, so you must recognise the potential challenges and prepare for the switch to self-employment. 

Any job change requires serious consideration, and people must consider the main drives when moving careers to ensure they make the change for themselves and their future career development. 

If you’re thinking about the change and would like to hear more about the benefits of contracting or discuss contract roles that might be suitable for you, then reach out to us to discuss further, and our specialist team of consultants can walk you through what this might look like.