Becoming self-employed


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Making the decision to go self-employed can be both exciting and daunting. Many choose to take this route, because of the extra flexibility and freedom provided through working for yourself.

However, that’s not to say it’s all plain sailing. Self-employment brings along extra responsibilities and sometimes a little added stress.

But, if you know the right steps to take, the benefits you’re entitled to, and the legal requirements that accompany self-employment, it could be just the lifestyle change you’ve been looking for.

Read on, to discover the definition of self-employment, the different branches within it, legal protections and safeguards and welfare entitlements. And who knows, perhaps you’ll decide to join the 4.76 million others who are enjoying the fruits of self-employment.

Who classifies as self-employment

It may be surprising to find out that there is no clear, legal definition of what it means to be self-employed. That being said, if an individual fulfils one or more of the following criteria, they are most likely self-employed:

  • They are personally responsible for the success or failure of their business
  • They provide a service to a business using their own tools and equipment
  • They provide invoices for their work instead of receiving wages
  • They can hire someone else to perform work
  • They take on several customers at a time and work on different projects

Why people choose to go self-employed

There are a whole host of reasons why people decide to go self-employed, with many benefits that aren’t accessible to regular employees.

It may feel creatively constraining to work under an employer. After all, this can involve having to develop and work on ideas that just don’t interest you. Contrasingly, those who are self-employed have a lot more freedom in relation to the work that they choose to take on.

A self-employed worker can plant the seed of an idea and watch it grow. Whether it’s pitching a new article idea, or planning an innovative home renovation project, the path of development is totally in their hands. And, this new sense of independence can lead to greater job satisfaction.

While it can be a difficult and potentially challenging road to success, when an individual finally arrives there, it can be incredibly rewarding.

Additionally, working a regular nine to five job for a company, may mean that the work an employee must take on is very repetitive. This can create feelings of stagnation. Alternatively, a worker who is self-employed, has the freedom to take on a number of different projects, as well as being in charge of how much they charge for each project.

For a lot of self-employed workers, one of the main benefits to working for themselves is the flexibility it brings. Often, it also means that they have the ability to work wherever they like, rather than being stuck in an office. From cafes, to home offices, self-employment means that a lot of the time, people can take their work with them, wherever they like.

Responsibilities

Although self-employment brings with it a lot of freedom and flexibility, self-employed workers do have additional responsibilities that regular employees don’t. It can be stressful figuring out what these responsibilities are, especially if you’re new to the world of the self-employed – but don’t sweat it.

When an individual decides to become self-employed, they must first notify HMRC to keep them in the loop. Once registered, each year they must fill out a Self-Assessment tax return, and pay National Insurance (NI) contributions, and income tax on profits earned. For this reason, it’s essential to keep track of all sales and income, as well as any business expenses.

If an individual is registered for VAT, VAT records must be kept. Meanwhile, if a self-employed person hires other people, PAYE records must be maintained too.

On top of this, many self-employed people choose to take on a personal pension, because they don’t get automatically enrolled in a workplace pension. Otherwise, they will only receive the state pension, which is a meagre £175.20 per week.

Types of self-employment

In the UK, there are a number of different types of self-employment that people can register as:

 

  • A sole trader is an individual who works alone, sets their prices, generates their own income, and is responsible for any losses
  • A partnership is made up of at least two people who are responsible for a business. That being said, the individuals within the partnership may not have equal shares within that business and may perform different roles. Their liability will correspond with their role, and share in the business.

 

  • A limited company is its own legal entity, which is separate from both directors and stakeholders.

Data protection

Under data protection laws (Data Protection Act 2018, and General Data Protection Regulation (GDPR), self-employed people, like all other businesses, must have legal grounds to obtain, process and store another person’s data.

Back in 2018, the Information Commissioner’s Office (ICO) introduced a self-assessment checklist to help self-employed people get a better understanding of data protection laws.

So, there’s no need to stress about whether or not you’re holding data illegally, just check out the checklist and you’ll be up to scratch in no time.

Protection against discrimination

Discrimination in the workplace can be devastating and have a huge impact on the way people work and feel about themselves. Fortunately, some self-employed workers are protected against this by law.

If a worker is categorised as a “contract worker,” and falls under Part 5 of the Equality Act 2010, they will be protected against unfair treatment based on any protected characteristics.

These characteristics include:

  • Age
  • Sex
  • Gender
  • Disability
  • Race
  • Religion
  • Pregnancy and maternity
  • Disability
  • Gender reassignment

Welfare benefits

Unfortunately, despite the numerous benefits of self-employment, there are some downsides too.

As self-employed individuals are not classified as workers, or employees – they are not entitled to the same welfare benefits and statutory pay. This means that they do not receive:

However, self-employed workers are entitled to some benefits. This includes:

Maternity pay and parental rights

While self-employed mothers are not entitled to receive maternity pay, many will be eligible for Maternity Allowance (MA).

In order to qualify for MA, a worker must fulfill the following criteria 66 weeks before the baby’s due date:

  • Have at least thirteen weeks of earning over £30 a week, or alternatively have made Class 2 NI contributions
  • Have been self-employed for at least 26 weeks

The full MA amount a self-employed mother can receive is £151.20 per week. However, if they have not made sufficient Class 2 NI contributions, this amount will decrease to £27 a week for 39 weeks.

Final thoughts

So, if you’ve been thinking about a change in career, or you’re wanting to become your own boss, you now know all the essential information you need to start this new chapter.

It may seem overwhelming at first, but it’s important to take baby steps. The feeling of achievement and success when things start picking up, will be worth all the hard work and dedication you’ve put in!

Article Created By Madaline Dunn

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