Becoming self employed can be wonderful if you want to make your own hours and plan out your days without anyone to tell you what you should and should not be doing. While there are many positives to working for yourself, there are some financial aspects that you will need to bear in mind.
If your company is small, or you work as a sole trader, you may not have a dedicated payroll or accounts team to manage your money for you. Where this is the case, you will need to sort out all the financial aspects of your business yourself.
Pensions
Whether you work for someone else or for yourself, it can be a good idea to have a pension set up. This will help you significantly when you reach retirement age, especially if this is in addition to your regular state pension. If you have previously had a pension through employment, you can choose to have a pension transfer, meaning your old and new pensions will now be consolidated and kept in the same place. This can be particularly useful if you don’t want to keep track of numerous pensions coming from a number of sources.
The rate in which your pension can grow will vary depending on the type of plan you choose. Some of the higher plans can give you more reward, but they will come at substantially more risk than those with less growth. Weigh up your options.
Tax
When you are self-employed, you will need to file your own taxes each year. For those that earn less than £1000 in a tax year, nothing may need to be done. Anything higher will require a full report of your business finances. This self-assessment needs to show the total earnings for your company, as well as any business-related expenses, such as fuel, rent, stationery, and work tools. You will also still have a tax-free allowance, the same as any other working individual.
Time Off
You may, at some point, want to have time off due to a holiday, illness, or even a new baby. You would not get any form of holiday pay, nor sick pay, as these are paid by an employer to their employee. If your illness is severe, you may be able to claim ESA or Universal Credit, however, this would be dealt with on a case by case basis.
Regarding maternity leave, this would depend on your national insurance contributions. Maternity allowance can last for up to 39 weeks, and you may be eligible if you have been working at your business for the last 26 weeks. In addition to this, you must have paid a minimum of class 2 National Insurance contributions for at least 13 of the 66 weeks prior to your due date.
While there may be more administrative and financial work that goes into working for yourself, it can still be highly rewarding. You don’t need to be bound by wages and another person’s expectations, giving you free creative reign to manage your company how you see fit.
