Things To Know Before Becoming Self-Employed

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Self-employment numbers are on the rise for a few reasons. The main one is that people are sick and tired of working for someone else. You want a chance to run your own life and dictate how and when you work. It’s a very attractive offer, hence the rise in self-employment figures. Plus, when you factor in coronavirus, you’ll probably see an even bigger increase in self-employment for the year 2020. A lot of people have sadly been let go from their jobs, so they’ve decided to try and make it on their own.

Being self-employed certainly comes with some benefits:

Set your own schedule every day
Take holidays whenever you like
Set your own price for your services
Enjoy work without a boss breathing down your neck
Do something that you’re passionate about
Work with more flexibility
Earn as much as possible with no ceiling attached to your wage

After reading through that list, you probably think this is the path you want to take. The last two points are particularly beneficial for most people. A typical job has you in 9-5 every weekday, and this is your life forever. You’re also locked into a specific salary no matter how much work you do. Sure, you get raises, but these are sporadic. When you’re self-employed, the possibilities are endless. You basically earn as much as you can every year – it depends on your work ethic and the ability to find clients. You may also be able to choose where you work, decide when you work, and much more.

However, it’s not all sunshine and roses. If self-employment was so good, everyone would be doing it. There are a few things you need to know before you take the plunge. Some of you may read these things and be content with them. But, a few of you may see them as dealbreakers that stop you from making a huge career mistake. Let’s take a look at some of the key concerns when you’re self-employed:

You start from the bottom

Imagine you’ve had a traditional job since you graduated from university. Maybe your degree was in marketing, so you spent five years working for a marketing company. That’s great, you have a lot of experience, but you’ve decided to quit your job and become a freelance marketer. While you certainly have the experience, you’re effectively starting from the bottom. You don’t have any clients, you don’t even have a website set up, and you have no real sense of direction just yet.

This is what it’s like for a lot of self-employed people – you throw yourself into a big world full of already established people. In the above example, you’ve now got to try and compete against other freelance marketers and all the marketing agencies out there. If you’re lucky, you can try and convince some of your contacts from your old job to come to you. Otherwise, you’re at the bottom of the ladder and have to find your way up. Some people manage this and enjoy the challenge, but others don’t. It’s something worth considering if, say, you want to quit your job because you want to make more money. Perhaps you’re better off asking for a promotion or looking for a higher paid role within the industry.

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You have to deal with tax

Obviously, as an employee of a company, you are paying tax. The thing is, tax is taken out of your income without you really noticing. When you’re given a salary, most companies tell it to you with tax taken off already. So, you know how much you’re getting paid every month and don’t have to deal with tax returns or all that jazz.

But, as a self-employed individual, you will have to handle tax returns yourself. This presents a few problems that might annoy you. For one, tax returns are long-winded and a lot of hard work. You may have to hire an accountant to help you out, which will save time but cost more money. However, there’s an argument that the cost of an accountant is worth it as they could help you save a lot of money on tax!

The big issue is that tax makes it harder for you to understand how much you’ve actually earned. You get paid a set amount, but you have to try and factor tax into the equation – not to mention other things like national insurance. This is why it's crucial that you understand things like how to estimate quarterly taxes for self employed individuals, so that you can accurately project your earnings and determine how much more work you need to put in to reach your goals. It’s pretty much impossible to work all of this out unless you have a full-time accountant running the numbers. Mostly, you wait until the end of the tax year and do your return, then see how much you have to pay. It can lower your annual income by a fair bit, and then you have to deal with paying tax as well. So, this can be frustrating for a lot of people.

It might be harder to buy a house

Following on from the previous point, it’s often harder for self-employed people to buy a house compared to full-time employees. Why? Well, it’s to do with tax. As mentioned, it’s harder for a self-employed person to accurately tell how much they’ve earned. When applying for a mortgage, this is a big deal. If you can’t provide an accurate amount, you probably won’t get approved.

Now, the good news is that times are changing, and it is easier now than it was before. For some self-employed people, there are things like a CIS mortgage that helps people in the construction industry scheme, making it easier to disclose your revenue. More mortgage products are being made available all the time, but it’s still harder to get a good mortgage on a decent rate.

Overall, you can see how being self-employed does come with some drawbacks. As stated earlier, none of these things might bother you. You may have no issues with any of them and still think the pros outweigh the cons. Still, it’s worth thinking things through and getting a more accurate view of life as a self-employed person. It could be brilliant, but it could be a mistake for some of you.