Working independently (self-employed) is a very attractive option for many of us: it has many advantages and greater flexibility, as well as offering us the opportunity to dedicate ourselves to do what we like. In the United Kingdom more and more people decide to start an independent business, just think that freelancers today represent more than 15% of the British population.
Being self-employed in the UK is very easy: the British bureaucracy is known to be smooth and easy and taxes are significantly reduced. Let’s see together how to become a self-employed in the UK.
What are the advantages of becoming a self-employed?
The advantages of working independently are several. Many make this choice because of the freedom it offers: you are the boss and it is up to you to decide where, how, when and how much to work. Moreover:
- It is often a more varied job that allows you to operate on multiple projects simultaneously;
- You can manage your time more autonomously, often allowing you to reconcile your professional commitments with personal ones, such as planning holidays, setting a medical examination or simply allowing yourself to get up later in the morning or take a day off;
- Depending on the work you do, you can organize yourself from home and save time wasted otherwise on public transport;
- You can hire other people, manage their duties and plan teamwork to achieve your goal;
- 90% of people don’t like their jobs. An entrepreneur, on the other hand, most often loves the work he does, precisely because he tries to transform a passion into a profitable business. And it is known that loving your own job brings many benefits because time spent working is not considered an effort but a pleasure;
- Developing a project that you created from scratch with your own hands, gives you satisfaction, makes you feel important, enriches your self-esteem;
- You often have the opportunity to earn a lot more than as employed, with the benefit of reaching some personal goals more easily.
What are the disadvantages?
Not all that glitters is gold. The advantages are numerous and attractive, but we cannot neglect the disadvantages of being self-employed. For example:
Who should register?
You must register as a self-employed if:
- Manage your own business independently;
- You regularly sell goods and services to make a profit (both online and offline).
If you are not sure that you are an employee or a self-employed, you can take a quick test on the HMRC website to find out your status and the type of taxes you will have to pay.
The questionnaire assumes that you have an employment contract. To answer questions, you will also need to be aware of some information, such as:
- Your responsibilities;
- Who decides which job to do;
- Who decides when, how and where the work is done;
- How you will be paid;
- If the contract includes benefits or reimbursements for expenses such as lunch, travel etc.
You must register as a self-employed if at least one of these conditions is applicable to your situation:
- You earned over £ 1,000 in a financial year through your self-employed business (what you earn from your employee job, if you have one, doesn’t count);
- You must prove that you are an independent worker in order to apply to be exempted from certain taxes;
- You want to voluntarily pay Class 2 National Insurance to be eligible for benefits.
How do I register?
You can easily and quickly register your online business on the HMRC website within three months from the start to avoid any penalties.
If you decide to work independently you will have to keep track of all your sales and expenses, in order to be able to declare them in your Self Assessment Tax Return, to be completed every April. This form is used by the HMRC to calculate taxes, known as Class 2 and Class 4 National Insurance (remember that independent workers must also apply for a National Insurance Number in order to work in the UK). The positive side of being an independent worker in the United Kingdom is to pay less taxes than in other European countries like Italy, Spain, France.
Taxes vary depending on how much you earn in a year. For the year 2020/2021, the bands are these:
- PAYE: The standard personal allowance is £12,500;
- Small profits threshold: no Class 2 NIC tax paid up to £ 6,475 per year;
- Class 2 NIC: £ 3.05 per week if you earn between £ 6,476 and £ 9,501 per year;
- Class 4 NIC: From £ 9,501 to £ 50,000 a year you will pay 9% of the profits plus 2% of what you earn over £ 50,000.
You will also need to register for Value-Added Tax (VAT) if you earn more than £ 85,000 annually, or voluntarily if you earn less.
Give your business a name
To name your business you can choose to use your own name or create one. In the first case you will not have to do anything, in the second case you will have to register your name.
When creating a name there are three main rules to follow:
- It must not contain “limited”, “Ltd”, “limited liability partnership”, “LLP”, “public limited company” or “plc”;
- The name cannot be offensive;
- It must not be unique.
For some words you will need an authorization to use them. For example, if you want to include the word “accredited” in the name of your business, you will first need to receive authorization from the Department for Business, Energy and Industry Strategy. See the list of names subject to authorization.
When sending official documents, such as letters and invoices, you will have to include your own name and the name of your business (if you have one).
Working from home
If you decide to work from your home, you will have to contact the local authorities to check if there are additional taxes to be paid. If you rent your accommodation, remember to contact the landlord to make sure you are entitled to work on his property.
Working from home can affect taxes, mortgage and insurance (your home insurance may not cover the material you use to run your business).
Are you a self-employed worker in the UK or are you planning to become one? Let us know in the comments!