Becoming self employed is becoming increasingly popular.
The idea of flexible hours, paying yourself what you want, being your own boss, being around for your children more and no more commuting to and from work.
What more is there to consider, why doesn’t everyone become self employed?
Well, according to the Office of National Statistics, 4.6 million of us have taken the plunge and gone self employed.
The figures show that the figure is made up of mainly millennial’s, who are taking a different approach to their parents and their regular employment and steady incomes.
However, becoming self employed has many drawbacks which are as a consequence of giving up a regular salaried income with an employer.
In this article we highlight the three main things to consider when you decide you want to go self employed:
If you are sick or go on a family vacation and you are self employed, then who is paying your wages?
Unlike regular employment, where often you are given around 28 days annual leave a year, you are no longer provided that luxury. The main source of income is driven from you and your productivity levels in the business.
So if you are off sick or on holiday, then there is no income until you return to work.
You can however, take out an ”income protection” policy if you are too sick to work, but the premiums on this can be around £50 a month.
With the pension regulations coming into force in recent years, most employers now have to legally provide all employees with a pension, taking 3% of your income, with them providing 5%
Pension providers such as NEST will collect your pension contributions until you are of the required age to collect your lump sump of 25% and eventually your regular pension payments when you retire.
When you are self employed, there is no pension plan offered to you, so you must take on the responsibility of sourcing your own pension to plan for your future once you reach retirement age.
A self invested personal pension (SIPP) is something which all self employed people should consider taking out when they make the change.
Own your own premises? You can purchase it with your SIPP and then charge and collect rents into your pension plan, therefore reducing the amounts which you need to contribute yourself into your pension.
If you require a mortgage on a new home or an additional property then, as self employed, its not as simple as providing 3 months wage slips and confirmation that your employment term will not be terminated in the foreseeable future.
As you are self employed and working for yourself, mortgage providers need much more reassurance that you are able to afford the mortgage.
Often, they will ask for 2 years worth of SA302’s (tax returns) or if you are working through a company, 2 years worth of accounts as well.
It is also worth considering as well that if you are unable to provide the information as you have recently made the switch, then, in the eyes of the lender, you are considered a higher risk, meaning that your interest rates will be adjusted accordingly.
Overall, the leap towards self employment can be a scary, yet rewarding option for many of us within the different industries across the UK.
Despite the three considerations highlighted above, we can offset the costs of this through becoming more tax efficient, adjusting our hourly/daily rate accordingly, or becoming more efficient in how we operate as a self employed person versus how efficient we were when employed.
Interested to find out more or would like some free advice? Please contact us.