Member Article

Advantages of Being Self-Employed

Becoming self-employed takes a lot of work and dedication, but there are also many benefits to being a sole trader. From financial advantages to taking control of your day-to-day, there are plenty of reasons you should consider becoming your own boss.

Is Self-Employment for You?

Many people dream of joining the ranks of 5 million other self-employed individuals in the UK, but it’s important to consider a few things first.

Going into business by yourself can be daunting, as you won’t have a steady wage at the end of the month, like you do when you’re employed. It’s crucial that you’re able to push through this and not let it bring you down, especially at the start.

You should also be self-motivated, as you’ll be the one responsible for every element of the business. This includes finding new work and promoting yourself. When it comes to doing the work itself, you must be organised and disciplined, as you must be able to perform all tasks without being told what to do.

For many, this is exciting since it offers the control they want in their careers; others may find it daunting. If you find it thrilling to do everything yourself and to be responsible for every detail, then self-employment may be for you.

After all, the many advantages of being a sole trader make it all worth it.

Earning Potential is Higher

A big reason people want to set up a business is to make a lot more money than if they stay employed. When you work for other people, you earn a specific salary that’s been agreed upon and which can only go up if you receive a raise, a promotion or simply negotiate more. If the company does well, you may not even see it reflected in your wages either.

When you’re self-employed, on the other hand, you set your own rates, which, depending on things like the industry and your experience, can be much higher. Technically, there’s no cap on how much you can earn, making self-employment a very attractive option for consultants, developers, landlords, and so many other individuals.

And, when your business sees a boost in profits, your take-home pay can increase too. Of course, it might take some time to build up your income, but the scaling potential is massive.

You Make Your Own Schedule

Another big sole trader advantage. Making your own hours and schedule allows you to work when you’re most productive and creative – for some, this is in the morning, for others in the evening. You can take as many breaks as you feel are necessary, a flexibility that you’re unlikely to have when in full-time employment.

The same goes for holidays. You can take time off when you want or spend time with your family and friends. To do this, however, you must be organised and realistic when it comes to your workload. You may not be able to take a break immediately when you want to, or you may have to work longer hours when you’re establishing your business, for instance.

Consider your work-life balance goals and work towards them from the get-go. Delegating tasks, such as your accounting, can help you make more time for yourself, your loved ones or your business.

You Choose Who You Work With

This is another key element of being self-employed. When you set up a business, you get to choose the work you do, which means you don’t have to take on projects you don’t like or to work with people you don’t want to work with. When you’re employed, however, you can’t choose your co-workers and may not be able to make any hiring or firing decisions.

The downside of being self-employed is that many people feel lonely when they don’t have co-workers to talk to throughout the day or bounce ideas off of. This is why it’s important to join peer groups and network with others in your field. This can help you to connect with people and not feel like you’re working in a vacuum.

No Day’s the Same

For people who want the same routine day in and out, self-employment may not be for them. As a sole trader, you’ll have different projects to focus on, so work is varied and it’s unlikely you’ll ever get bored. You can change up your working hours if you want, choose a specific task to work on, and so much more.

Job Security

While being self-employed can be risky (for example, you may not have a guaranteed salary every month or you can make a costly decision in your business), it can also provide you with job security. You don’t have to worry about getting fired because you’re your own boss and you don’t have to stress about going after a promotion or being rejected for it.

And, if you work on several different projects, you don’t have to worry about losing a contract. So, job security can be both a pro and a con of being a sole trader, depending on your situation.

It’s Easy to Become a Sole Trader

There isn’t a lot of admin involved in being a sole trader – in fact, you only have to let HMRC know you’re self-employed by registering as a sole trader and picking a business name. You’ll have to submit a self-assessment tax return as well, as this is the way you’ll pay taxes.

The other thing you must do is keep accurate records of your expenses and sales and, when your turnover is above the £85,000 threshold, you have to register for VAT.

Other than this, you should be good to go. This operating structure is also a great option for people wanting to dip their toes into self-employment without committing to setting up a limited company, which comes with more paperwork and admin, as well as more responsibilities.

More Tax Benefits

When you’re employed, you pay taxes through PAYE and don’t have to worry about a thing. As a sole trader, you must pay the right amount of tax yourself, which is why it’s so important that you keep accurate records of everything. However, don’t let this deter you, especially because a specialist accountant can help you out with your self-assessment return, ensuring your submission is submitted correctly and on time.

After all, if you’re a sole trader, you also keep all after-tax profits. You don’t have to split them with shareholders or anyone else (unless you’re in a partnership), meaning you may be able to take home a considerable amount of money.

You can also avoid IR35 when you’re a sole trader, as this legislation doesn’t apply to this business structure.

Another advantage of sole traders is that they’re taxed on their profits. This means you can claim expenses and allowances to reduce the profit amount and, therefore, reduce the amount of tax you must pay. You may be able to claim expenses for office equipment, utility bills if you work from home, fuel, and more. You must keep records if any expenses to prove you can, indeed, claim for certain things.

More Privacy

Not having to register with Companies House is another sole trader benefit for many people. You have more privacy with this operating structure because you don’t have to offer details of your accounts. HMRC’s taxpayer confidentiality rules say that your private information won’t be available to the public, so your competitors won’t be able to see it either.

On the other hand, limited companies must create public records that can be inspected by anyone on the Companies House website.

Should You Incorporate?

There might come a time where you’ll wonder whether turning your sole trader business into a limited company is the right option. There are many advantages of a limited company, including limited liability, meaning you’re not responsible for any debts the business might incur, as you’re seen as a separate entity from your company.

Incorporating can also be more tax-efficient, because company directors can pay themselves a small salary and receive the rest in dividends, so they’re also paying fewer national insurance contributions. As a limited company owner, you pay 19% of corporation tax on profits but sole traders pay more (from 20% to 45%, depending on how much they make).

You Can Take Advantage of Government Support

This might be the perfect time to take the leap and become self-employed. The government understands that the coronavirus pandemic has made it difficult for businesses and people across the nation, including those in self-employment, and seeks to make life easier for many.

For example, if you can’t pay your self-assessment tax on time because of the pandemic, you may be able to do it in instalments, helping you spread the cost through several months. This can help many people stay in business.

This was posted in Bdaily's Members' News section by Kate Martin .