The recent ruling by an employment tribunal that Uber workers should be seen as an employee rather than self-employed has reignited debate about the pros and cons of working for yourself.
More of us are self-employed − nearly five million in the UK. How can you decide if it’s better than being an employee?
Self-employment has obvious benefits (flexible hours, being in control of your work and success, being your own boss, no commute) and disadvantages (no regular income, paying your own pension, little or no structure to your day and more paperwork).
Before going self-employed think whether you have the right skills, character for it and how it will affect your finances and personal life.
Questions to ask, according to recruitment company Reed.co.uk, include:
- Do you know what you want to do – and are you qualified?
- Can you afford to be self-employed?
- What are the financial options (e.g. grants, bank loans, investors, crowd funding)?
- Do you have a business plan?
Pick your business structure
If you start working for yourself, you’re classed as a sole trader – even if you haven’t yet told HM Revenue and Customs (HMRC).
Other options include:
- Partnership (two or more people, who share profits and are jointly responsible for the partnership’s debts)
- Limited company (its finances are separate to your personal finances).
- Franchise (you make a contract with an established business that’s owned by the franchisor. The contract can be complicated, so you should get legal advice).
- Social enterprise (a business that people or communities and re-invest profits for these purposed).
Sometimes the classification of workers (employee or self-employed) is disputed. A recent ruling by a London employment tribunal that drivers for Uber, a ride-hailing app, are employees (and so entitled to holiday pay, paid rest breaks and the national minimum wage), could have wider implications for “gig economy” workers in other industries.
Finance and tax
Don’t forget the financial paperwork. You’ll need to register as self-employed to make sure you pay the correct income Tax and National Insurance. The government’s web site (gov.uk) has extensive guidance on this.
If you set up a limited company, you’re not classed as self-employed but as both an owner and employee of your company. You’ll follow different rules on tax and National Insurance. For example, you’ll need to register your private limited company with Companies House and pay corporation tax rather than income tax. You may pay give yourself an income through a combination of salary and dividend payments to (legally) minimise your tax bill.
An accountant can help with book-keeping and annual tax return and check that you claim all possible tax reliefs, allowances and businesses expenses. Accounting software, including online “cloud software” can make it easier to keep track of your income and expenses.
You must register for VAT if your turnover is over £83,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.