The five million self-employed people in the UK have been some of the workers hardest hit by the economic fallout of Covid. More than half of those who own a business or work for themselves say their financial situation has worsened during the pandemic, according to The Money Charity.
In the recent Budget the Chancellor announced the extension of the self-employment income support scheme, with two more grants available for those whose earnings have been damaged by lockdown, including the newly self-employed who filed a tax return for the year 2019-2020.
Nevertheless, research by London School of Economics found that a significant number of freelancers are packing it in to join the salaried workforce because they are struggling with money after being left out of state support.
So what do you need to know if you choose to go it alone?
Is this the right time to go self-employed?
Lockdown, the normalisation of working from home and keeping unusual hours around caring duties, have created a surprising number of new and online opportunities for those prepared to offer their skills on a flexible basis.
There’s new demand for everything from meal kit delivery drivers and bicycle couriers to Zoom cooking teachers, online fitness instructors, and dog walkers for all those pandemic puppies.
In January, 31,423 businesses registered with Companies House, 54 per cent of which were for side ventures.
Chris Wootton, managing director of domestic cleaning franchise Poppies, believes that the future is promising for people looking to become their own boss, and there are a number of opportunities for those starting a franchise in the care industry, cleaning services and education sector.
If you have recently lost your job, had to reduce your hours, or are on furlough (most companies will let you claim furlough and still take on freelance work elsewhere) setting up on your own may offer a way to boost your income, often in a way that fits around the juggle of looking after kids, too.
There’s a lot you should weigh up, however, before trying what can be a very precarious way to earn a living.
Budgeting for tax when self-employed
One of the biggest differences about working for yourself is the tax you pay and how you need to pay it. You’ll have to budget for it yourself. Get a separate business bank account – new apps such as Coconut, Tide and Starling Business help you work out how much to set aside.
You can earn £1,000 during the tax year before owing anything, known as the trading allowance. After that point you need to register with HMRC and submit a self-assessment tax return each year. You pay income tax at the same rate as those with a salary, but national insurance for freelancers is lower.
If you expect to turn over more than £85,000 you also need to register for VAT. The Money Advice Service has helpful introductory guides to this.
Choose how to be self-employed
There are different ways of structuring your own business. You could be a sole trader, a limited company or a partnership. There’s information on the pros and cons of each option at gov.uk.
You may also decide to franchise, which is where you run your own business under the name of a bigger brand.
Many brands are hiring and training up workers made redundant during lockdown. EweMove, for example, an estate agency franchise, is looking for former shop and hospitality workers who it believes have skills that are well suited to becoming a successful estate agency business owner.
There are free online courses and opportunities on the British Franchising Association’s website.
Work out how much more you need to earn as a freelancer
When setting your hourly rate remember to price in the cost of all the perks that you may take for granted in a salaried job. Holiday pay, for example, bank holidays, sick pay, and maternity or paternity leave. There are online calculators to help you see more clearly what you need to earn per day based on the annual salary you’d like to match. Don’t forget to factor in time needed to do admin, send out invoices and manage your business, too.
One of the most valuable perks you’ll miss out on is a company pension topped up by an employer. You should start your own, you will still get the generous tax relief. NEST offers self-employed pensions, and apps like PensionBee and Penfold are intuitive and low cost.
Self-employment means very little safety net if you or your family become ill or you are unable to work as a result of caring duties. Think about what would happen in this scenario and plan for it.
You might consider income protection insurance, which will pay you a sum to cover lost earnings if you are unable to work. Do your research on any exclusions, though. You want something that offers a payout for your own occupation, that is the work you’re qualified for, not just an inability to do any work at all. A financial planner or adviser, or brokers like LifeSearch and Drewberry can help you find a policy.
Help for the self-employed struggling during lockdown
There are two new self-employment income support scheme (SEISS) government grants available for sole traders and those in a partnership who have seen a dip in earnings during the pandemic, the Chancellor announced in last week’s Budget. Limited company owners are not eligible.
The fourth grant will be available to claim from late April until a deadline of May 31, and is designed to cover February to April this year. You will receive 80 per cent of three months’ average trading profits, up to a maximum of £7,500 in total.
Unlike previous SEISS grants, it is available to those who submitted a tax return for the year 2019-2020 by midnight on March 2. That means 600,000 more people can apply, as well as those who submitted in 2018-2019. Your trading profits must have been less than £50,000, and at least equal to any other income, for example, from another job.
There is going to be a fifth grant available to cover May to September, which you will be able to claim from late July.
This time round the grant will be based on how much your turnover has reduced in the year April 2020 to April 2021, and will only be worth 80 per cent of three months’ trading profits, capped at £7,500, if your turnover has reduced by 30 per cent or more. For everyone else, it will be 30 per cent of trading profits, to a maximum of £2,850.
A supportive community at excludeduk.org has advice for those who have missed out on any government financial support.
Time to pay taxes
If you are struggling to meet your tax or VAT bill you can spread payments, provided you owe HMRC less than £30,000. You can go to gov.uk/difficulties-paying-hmrc for more information.
Grants from other organisations
There are some industry bodies and charities offering workers one-off grants or support during lockdown. That includes, for example, Hospitality Action, considering applications for financial assistance from those who have worked in hospitality for one year within the last two years and have lost jobs or hours as a result of the pandemic. The Arts Council England has a list of grants, as does Wales Arts and Creative Scotland.
The government’s Bounce Back Loan scheme offers loans to small and medium-sized businesses of between £2,000 and £50,000, with no fees or interest for the first 12 months. Find out more at british-business-bank.co.uk.
NatWest bank has just pledged an extra £1bn to its female entrepreneurship fund, offering business loans to sole traders, partnerships or limited companies that are at least 50 per cent women-owned or have a woman in a prominent position on the board.
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Career tips and advice from our Jobs and Training series:
- How to change your career – A step-by-step guide
- Employee rights in the UK: Everything you need to know
- Redundancy rights: Everything you need to know
- How to write a CV that will get you a job
- Job interview questions: What to ask and how to answer
- CV templates: Free downloads for job application success
- What to do if you’ve been made redundant
- Apprenticeships: Everything you need to know
- Apprenticeships: How to get a job once your placement ends
- Redundancy: Surviving the mental health impact of losing your job
- 11 tips to help you make the most of online learning
- How to go self-employed in the pandemic
- Budgets, benefits and tax breaks: Money advice for young people after Covid
- The top job adverts to look out for as lockdown eases