All information correct from April 2020.
Have you always dreamt of being your own boss? Then registering as self-employed is probably the best type of work contract for you. Self-employed can mean being a freelance writer to owning and running a business. You will need to come up with a business name, your brand and your USP (unique selling point). To be successful, you have to be determined, not afraid to take risks and do your research. It is estimated that 4.8 million people in the UK are registered as self-employed. Maybe one day, you will join their ranks.
Being self-employed can bring a sense of freedom and most people say its a positive life change. There are plenty of benefits to being self-employed.
Choose when to work. From working from home to choosing how long your days are, being self-employed means you can arrange a work-life around other commitments, such as childcare.
No more commute. In some cases, you may never have to commute. This means you have more time in your day to do other things.
Turn work down. You're not obliged to work with that annoying client.
You're the boss. This means you choose how to work and when to work, and how much you're paid.
Pay less tax. You can offset work expenses against tax, so you can keep more of what you earn.
You may work longer hours than you did when you were employed, mostly because it is harder to turn work down if you don't know when your next project is coming. When you're enjoying some time off, you most likely will still be checking emails and answering calls. Being your boss means you're ultimately answerable to all clients demands and with a reputation to keep, you may bend over backwards to keep clients sweet. Self-employment isn't easy!
Becoming self-employed is a financial gamble. You're giving up a fixed salary you receive if you're a full-time employee at another company. You may experience months of high income and other months with no so much money at all. You will also have to prepare invoices - so your income will fluctuate weekly, say goodbye to payday!
Before considering self-employment - you must analyse your finances. How much savings do you have and what are the start-up costs? You also need to take into account the lack of benefits you may have. You no longer will get sick pay, holiday allowances or any other perks that come with a full-time job.
Being your boss also entails you running the business. You're in charge of not only the projects but also all the administration, accounting and general day to day running of a company. Self-employment can be a little lonely, too. If you're a person who thrives by working in a team, being self-employed maybe isn't for you. We at StudentJob don't want to scare you off; we are just stating the reality of how being independent isn't all sunshine and roses. However, if it pays off, you could one day be the CEO of a significant global company!
Limited Company. A limited company is legally separate from you. This means if your company goes bust, your personal finances won't be affected. Some people also believe by registering your business as a limited company, (having Ltd at the end of the name) secures legitimacy. Especially when attracting new clients. You will also need to register your company at Companies House and will need to appoint a director and have at least one shareholder.
Sole Trader. This may be the most comfortable option - especially if you're a freelancer. Being a sole trader means if your business goes bust, you will be responsible for any losses your business may make. However, you get to keep all profits after tax. You will need to be on top of all business costs and keep records of spending and payments.
Partnership. This option is for those who want to go into business with someone but not to become a limited company. You will share equal responsibility for any losses, and you'll have to divide any profits. You and your partner will have to pay separate taxes.
The tax year runs from April 6 one year to April 5 the next. Registering as self-employed means, you're entitled to the same tax-free personal allowance as someone who is in a full-time job. For the year 2020/2021, the standard personal allowance is £12,500. This is how much you can earn before you start paying income tax. However, the personal allowance will change depending on how much you make in a year. For example; if you have earned more than £100,000 a year, your personal allowance of £12,500 will reduce £1 for every £2 of income. (If you have more than one job, you're only entitled to one personal allowance.)
Self-employed people also pay National Insurance. National insurance is contributions which pay for certain benefits including the State Pension, Universal Credit and the NHS. You will pay this if you're over the age of 16, self-employed and making a profit of at least £6,365 a year.
If you're running a limited company, you will also have to pay Corporation Tax. If you're selling goods, you will also have to submit a VAT returns if you earn over the VAT threshold. The current limit is £85,000 a year.
As an employee, the taxes are automatically taken out of your paycheck each month. Working for yourself means you manually have to pay your tax bill. This happens twice a year, in January and in July. You have to make sure you have enough money saved to cover your tax bill.
To pay these taxes, you will need to submit a Self Assessment Tax Return. This is why it is super important to keep track of your finances when you're self-employed.
The income tax is the same as someone who is in a full-time job. However, as a self-employed person, you're taxed on your profits, not your total income. To work out your profits, deduct your business expenses from your total income. This is the amount you will pay income tax.
The current thresholds for income tax are;
|Personal Allowance||£0 -£12,500||You will pay 0% income tax|
|Basic Rate||£12,501 - £50,000||You will pay 20% tax on your profits|
|Higher Rate||£50,001 - £150,000||You will pay 40% tax on your profits||Additional Rate||over £150,000||You will pay 45% tax on your profits|
If the thought of filling out your tax return fills you with horror - don’t forget, you can always hire an accountant!
Many young entrepreneurs jumped into the world of self-employment.
Henry Patterson, at the age of 14, published his book, 'The Adventures of Sherb and Pip.' He has created a small business empire based on his characters in the book.
Nina Devani, who at the age of 16, created software called DevaniSoft. Which, allows people to remind them of their numerous passwords.
Ben Towers, is a freelance web designer and at the age of 19, created his company Tower Design. He now employs 22 people, and they create digital marketing campaigns for many established businesses.
Ollie Forsyth started his own business by the age of 20. He owns, 'Ollie's Shop' which specialises in selling items to teenagers.
Marianne Caroline Hughes created KnowLabel, at the age of 23. KnowLabel creates a digital label for clothing items that show the environmental impact and sustainability in clothes.
Maybe you could be a young entrepreneur in the UK, too!
Now that you know about registering as self-employed, why don’t you learn about the other job contract types you can get in the UK? If you have decided self-employment isn’t for you, check out our graduate jobs and part-time jobs on StudentJob.