The top 5 things to consider before you take the self-employed plunge
The UKs workforce includes over 2 million freelancers with the self-employed community rising 25% since 2009. For many, the prospect of being your own boss with flexible working hours and your own choice of clients can be to enticing to resist however, going it alone has its pitfalls. Heading into the freelancing realm feet first can see many can fail within the first couple of months. Using your expertise and completing tasks that directly relate to your industry can be a minute part of your working week as there are many essential actualities that are not talked about.
Read your contracts, pay your taxes
First things first, it is vital that you register yourself as self-employed with the HMRC. Working in a company where an accountant and HR is accountable for ensuring that you pay taxes and NI is something that many of the UKs workforce takes for granted. However, going it alone makes you responsible for all aspects of your business, including paying your taxes. David Baddeley, CEO of Scottish Trust Deed says, ‘many freelancers do great things within the first year. They see the money rolling in and believe that 100 percent of their income is disposable and that the time to fill in the dreaded tax return is months away. Neglecting to put aside money each month for your tax bill is the fastest way to land yourself back into full time employment – with colossal debt. For the first year at least, complete your tax returns with a chartered accountant. There will be products that you did not realise you could ‘put through the books’, and in the long run it will save you a fortune as well as protect you from failure’.
Your saving grace
Freelancing does not provide the opportunity to exempt yourself from the shackles of a binding contract. In fact, it is likely that you will be signing and presenting your own contracts more than ever. Read everything you sign. Overlooked clauses in contracts when working in a gig economy can impact your income. It is also crucial that you create a contract of your own to protect yourself. Producing your own contract will avoid the inevitable eventuality of late payments, see that both parties are aware of work proposed and evade the prospect of no payment at all.
The charity Shelter discovered 8 million people within the UK are one pay cheque away from being unable to pay for their home. The influence of social media and ‘keeping up with the Jones’, can lead many to live beyond their means. When transitioning to self-employment, there is a common belief that you will be living on very little most of the time. In many instances, this is not the case. Going freelance often paves the way for discovering the value of your skillset and talents. Consequently, your income can shoot up. It can be tempting to increase your purchases and treat yourself however, it is always worth remembering that your income will vary month to month. Always remember to save, this will see your quite periods are covered as well as your holiday months.
‘I earn loads, a mortgage will be easy’
Stepping onto the property ladder is in a lot of peoples 5-year plans. Before setting out to become a freelancer, it is wise to establish when you want to purchase a home. Most banks require 2 years of tax returns that are completed by a chartered accountant. Be prepared to provide more paper work than the average person and have all your admin in order.
Clear your debts
When you are a full-time employee of a business credit card debt, overdrafts and store cards can be no challenge whatsoever. Budgeting is easy as your income is the same month to month and your finances transparent. However, this is far from the case when you are self-employed. Before you become freelance, clear any outstanding debts that you have. Baddeley says, ‘the lines on what constitutes as debt can be blurred for some people. Many do not acknowledge that an overdraft is a debt and tend to live in it. Despite popular belief, an overdraft is very much a debt and if what goes into your account greatly decreases, the bank can ask that you pay your overdraft in full and give a deadline. This can be easily avoided if you clear all debts before you encounter a career change and ensure that you are awarding yourself full stability’.
Know your worth
Think you know what your workplace charges clients for your services? Chances are, you don’t. Most freelancers tend to change for the value of their work, not the time is takes to complete it. Clients are paying for your expertise and what your workings bring to their business. Talk to other freelancers within your field to establish what they charge however, ensure that your costs reflect your experience and do not let your ego take over.