Posted: September 25, 2014
According to a recent report by the Office of National Statistics (ONS), 14% of Britons are now self-employed, with the number increasing by 8% in the last year alone.
Some of the benefits of self-employment include being able to choose your customers, being your own boss, and even being able to choose your own working hours.
Whilst an increase in entrepreneurs seems like exciting news for the business industry, Burgess Hodgson Partner Matthew Sutton warns that there are a number of things to consider before starting a new business.
Longer working hours – The ONS figures show that more than 13% of self employed workers are working more than 60 hours a week, compared to just 4% of employees. On top of this, the average income for a self employed worker has fallen by 22% in the last 5 years, whilst self employment in those aged over 65 has doubled in the same period.
Lump-sum tax payments – Self employed people need to take in to account that they will only be making one or two tax payments per year, so they are likely to be larger payouts. With careful planning they can make sure they save some money each month to go towards their tax payments.
Building the business – The business risk is yours. Careful financial planning is required for when work is slow, or if your invoices haven’t been paid to you in time. Depending on the type of work you do, some months may be leaner than others, and consequently making payments could be difficult without careful budgeting.
Loss of employee benefits – Self employed workers may miss out on a number of advantages and benefits currently enjoyed by company employees, including: private health care, free eye tests and glasses, and other incentives such as cycle to work schemes.
Loss of income for holidays, sick leave and maternity/paternity pay – The self employed won’t be paid anything for holidays or sick leave. Whilst holidays can be managed and planned in advance, if you are unexpectedly taken ill, this could result in a significant loss of income and could harm your business if you are away for too long.
Employed mothers and eligible fathers are entitled to payments during their maternity/paternity leave, which is another factor to be considered if you are self employed and looking to add to your family.
So why do people bother?
There are many factors, and different people each have their own personal motivations. A sense of self-determination, control and pride in what you achieve are the common themes from those who succeed
If you’re thinking about starting a new business we recommend talking to an accountant to help you get the right set up from the outset. We can assist in ensuring you understand the taxation and business aspects of becoming self employed. With some planning and forward thinking many of the risks and issues identified above can be mitigated and managed to allow you to focus on making your business a success.
For more details contact Matthew on 01227 454627 or email him.