2020 has been a year like no other. Covid-19 has hit the lives and livelihoods of everyone hard and as unemployment figures reach a record high and many find themselves out of a job, 2021 will also present its challenges.
But, in the face of adversity, this could be a good time to sit back and assess what you really want out of life and work, reflect on your skills and consider whether now might be the time to take the plunge and embrace self-employment.
Julia Kermode is CEO and founder of IWORK, a free online resource service to help freelancers, contractors, agency workers and temps to navigate the whole business of self-employment and here are her tips for those thinking of setting up on their own in 2021.
First and foremost, you might want to ponder a few tough questions to help you decide whether freelancing is for you. Are you disciplined enough? Is there a market for your skills? Do you know your own strengths and your own limits? Are you flexible enough to adapt quickly to new clients and new projects that come your way? Do you have a business head to negotiate well on rates? Do you have a strong network of contacts and can you market yourself effectively? Are you organised to manage your workload and manage your finances?
Once you have done some soul-searching and are still keen to set up on your own then you might want to consider the following practicalities.
Starting up your own business can be as daunting as it is exciting. As well as getting out there and selling your services, there is also a lot of behind-the-scenes paperwork you’ll have to tackle.
We’re talking, of course, about tax, National Insurance Contributions, and other paperwork that regularly needs to be filled out to keep HMRC happy and updated on your financial affairs.
Your tax obligations as a self-employed worker
As we’ve briefly mentioned, the route you take when registering as self-employed will have an impact on the type of tax you pay and the amounts, too.
If you are working through your limited company, for instance, then the added burden of annual corporation tax will fall on your shoulders – something which won’t happen if you’re a sole trader.
On the other hand, though, you have minimal protections as a sole trader when compared toa limited company owner. If things go wrong, then you will have to handle all the liabilities yourself and this could also put your personal assets at risk.
However you register your business, it’s essential to keep records of every transaction you make – incoming or outgoing – to make sure you’re paying the appropriate amount of tax to HMRC annually.
Those records will also be handy further down the line if you wish to develop a business plan to grow your business and approach lenders such as banks for business loans.
Also, keep in mind that whether you’re a sole trader or limited company you’ll have to register for VAT for turnover exceeding £85,000 over a consecutive 12-month period.
What’s in a name?
When choosing a name for your business or a trading name if you are setting up as a sole trader be sure to choose a name that is professional. Legally, your business name must not include sensitive words and as a sole trader it must not include ‘Ltd’. As a limited company owner, you must check via Companies House for uniqueness and if you are designing a website it is easy to check for domain names.
How much to charge?
There are no set guidelines when it comes to deciding on your rate, but don’t undervalue yourself. Once you start working with a client for a price, it can be difficult to increase that price, so it is much better to quote a higher price which you can then use to negotiate with your prospective clients. Remember that clients are buying your skills because they have a gap in their expertise, so price yourself accordingly. Remember to include a proportion to cover your overheads, particularly as your clients are making savings by choosing you as a freelancer. By hiring a freelancer, they do not have to provide paid holiday, maternity or sick pay. Nor do they have the cost of employers National Insurance Contributions.
Never work for free, even when you are starting out. Some clients might try to strike a deal of free work in exchange for building your portfolio or a good reference. That approach is insulting and shows they undervalue your skills. If you work for free, you lose out twice; once by not being paid and twice because whilst you are working for yourself you are missing out on the opportunity to work for paying clients. It is always wise to keep a pipeline of potential clients warm too so that you can hopefully generate ongoing work.
Get insurance in place
With freelancing comes lots of freedom to work on a wide and diverse range of projects. However, if something goes wrong at any time you could be in trouble if you do not have the right insurance in place. With independence comes responsibility and it is important that you consider the right insurance for you. The pandemic has demonstrated the importance of considering certain types of insurance such as sickness and income protection. So, ask yourself do I give professional advice? Will I get paid if I am sick or injured at work? Do I employ my spouse? Do clients visit me at my premises? Do I have legal duties if I operate as a limited company? Do I need funds to defend myself against any actions taken against me, even if they are unfounded?
If you can answer yes to any or all of these questions, then it is important to consider taking out some insurance.
What’s stopping you
There are some 4 million people working for themselves in the UK today and that figure is set to grow as more and more individuals are taking their futures into their own hands whether through choice or necessity. For most people, it is a positive choice and, for the majority who make the decision, it is a move that they never regret. It’s all about being master of your own destiny and more people are finding that appealing. If you don’t try it, you will never know and it could be the fillip you need to your career and your life in 2021.
About the author
Julia Kermode is CEO and founder of IWORK which was set up in 2020. Championing independent work, the website provides a plethora of valuable resources to help all types of independent workers, from agency workers, temps, gig workers, contractors, freelancers and the self-employed to better understand the business of working for themselves.
Are you an entrepreneur or looking to start your own business? We’ve got hundreds of articles on learning entrepreneurial skills, how to become your own boss, marketing your products and managing your own team. You can find more of our entrepreneurial articles here.
