A Simple Guide to Self-Employment
If you’re looking to gain more control over your lifestyle and your career development, getting into freelancing could be a great place to start.
When I first moved to London after graduation, I had to face the problem which all young professionals face these days: I couldn’t find a job. Stuck in a perpetually vicious cycle ‘we are looking for someone with experience’ — stressed, desperate and full of doubt, I had to turn to my last resort: freelancing.
Working for myself turned out to be, quite literally, a saving grace. Although it was a giant leap in terms of getting out of my comfort zone, now, years later, it feels like it was the right thing to do and totally worth it.
At first it is going to be pretty scary. You’ll have to learn how to rely on yourself, figure out, budget and pay your own taxes, plan ahead, build a network and, perhaps, a client base. In return, you will gain an immense amount of freedom, which I believe, is the ultimate goal.
When working for yourself, you’ll have the freedom to choose:
- which projects you work on
- who you work with
- how often you work
- how often and how long you do not work
You’ll be able to choose the projects that align with your values and walk away from the ones that do not. For the last few years, I was able to steer clear from companies that promote alcohol, tobacco, gambling and consumerism. I decided to be mindful of what I’m contributing my time to: something that supports humanity, promotes health and overall wellbeing, happiness and equality. Time is a precious resource — we don’t have to climb onto the barricades or be in the wealthiest 1% to make a difference.
My journey contracting/freelancing wasn’t easy — a real rollercoaster of emotions, experiences, personal and professional growth. I’d like to talk about that in my blog posts and share tips and some actionable steps.
In this post, I’m going to write a small guide on how to start working for yourself. I’ll share a few templates you can use (see ‘Invoicing and bookkeeping’), as well as some more specific advice for people living and working in the UK.
Please note, I am not a financial advisor, thus I’d recommend taking this information with caution and double-checking everything.
Getting Started
Figure out what you’d like to do and reach out to people or companies who can benefit from your knowledge and your skillset. Make sure you’ve got enough savings or a job to support yourself when starting out.
Start with a piece of work at a low cost or free of charge. Underpromise, overdeliver and learn with every step.
If you do your job well, people will want to thank you — if not with a monetary reward, then, perhaps, with an excellent reference and will want to recommend you to people in their network. Reciprocity is a human condition — we’re wired to want to give back when we receive something of value.
A few links to look for freelance gigs:
- Websites with startup jobs like WorkInStartups.com, AngelList.co, etc.
- Facebook Groups, e.g. ‘London Tech Startup Jobs’ and the likes
- Telegram channels like ‘Remote jobs’ (I haven’t tried that one myself)
Look up top startups in your field of interest. Ask around yor network and your friends. Browse startup companies on LinkedIn or websites of startup accelerators. Reach out directly and ask if they’d like to have an extra pair of hands, tell them that you’re willing to do some unpaid work — a lot of early-stage startups are short on budget and will be happy to welcome you and grateful for the contribution.
The “word of mouth” has been the best option for me so far. So, once pandemic is over — hopefully — do loads and loads of networking. Just keep in mind, as Tim Ferriss says jokingly: ‘don’t be a networking whore’—be authentic and be yourself. Check for networking events on Eventbrite, MeetUp, Facebook, Twitter or LinkedIn. Hackathons and design jams are such great places to network — can’t stress that enough!
Moving Forward
Once you’ve got some experience and found a paid gig, you’d have to figure out a few next steps. Look up online what’s an average industry standard for the type of job that you do and choose your daily rate.
If you aren’t sure you’re ready to dive into working independently, you can still earn up to £1,000 without having to register as self-employed in the UK. Once you’ve reached the threshold and started earning more than £1,000, you will have to get registered within the next 3 months.
Always double-check all the information at the official governmental website of the country of your residence, e.g. www.gov.uk in the UK.
A Sole Trader or a Company?
If you are a tough nut and willing to go ahead, let’s figure out what type of entity will work best for you. In a nutshell, starting as a sole trader is quick, cheap and easy, whilst setting up a company could have some tax-saving and limited liability benefits, but could be a bit more complicated to run.
Working as a sole trader
If you want to get your foot into freelancing or contracting in the UK, you can start with registering as a sole trader.
You’ll have to fill out a form with your personal information and submit it online— super simple. You will then receive a UTR code by post confirming your registration, along with the login and password to help you log into the self-assessment online platform (make sure to keep them safe).
Once received, you’re ready to trade.
Working as a company
There are some benefits of working as a limited company: you aren’t personally liable for the damages, meaning your liability is going to be limited with the assets that your company owns.
In plain English, if you mess up in some way — hah, I’m sure you won’t — but if you do, and a client wants to sue you, you won’t be risking your personal possessions in a legal dispute (possessions like a house, a car, etc.).
Another reason for registering as a company are tax-saving gains. If your business starts generating more income than £30K — £50K a year, you may want to look into operating as a company.
Some solopreneurs used to register as an Ltd. so that they could pay themselves a lower salary — thus less tax— and pay the rest in dividends. The dividends used to be taxed in a more beneficial way for the business owners, but that has changed in the recent years, so there isn’t much “gain” here.
Besides, if you’re working for the same client for more than 6 months and/or if you’re working from their offices, or if you’re using their equipment and software subscriptions, etc., according to the ‘IR35’ rules you may be considered an “employee in disguise”, and accused of tax-avoidance, thus get in trouble with the tax authorities.
You can register a company yourself, or look up company formation firms or speak to an accountant to help you with the registration process. You’ll have to get your company registered with Companies House and HMRC.
Taxes
If you decide to register as a sole-trader you’ll have to do a self-assessment. Self-assessment is the process of showing the government how much you’ve earned and how much tax you have to pay.
Self-assessment should be done every year. The fiscal year in the UK starts on the 6-th of April of the current year and ends on the 5-th of April of the next year (weird timing). Once you’ve submitted your return, the tax bill should be paid twice a year by the 31-st of July of the current year and the 31-st of January of the next year (super confusing, I know).
Online salary calculators can help you calculate the tax you’ll owe, but the general rule can be: put aside roughly 20%-25% of the earnings if you earn less than £50K a year, or 30–40% once you’re over £50K. Keep that amount in your business-related bank account just to be on the safe side when it’s time to pay taxes.
Some freelancers I know use accounting software or hire an accountant to help them with the bookkeeping. This will cost you anywhere from £20 to £100 per month. For the sole traders the process of bookkeeping is pretty straightforward, so if money is an issue when starting out, you can do everything yourself. See what works best for you.
Admin
Invoicing and bookkeeping
Ok, so you’ve found a gig, agreed on the payment, did the work and now about to submit your invoice to get paid.
Find an invoice template, or use this one I’ve created. Fill it out and send it to the client. The invoice should have your details, your client’s details, the amount to be paid and when it’s due. Save all the invoices, of course.
Have a spreadsheet with the invoice details, along with the date you sent them out and the date you received the payments. Here’s a template you can use for your bookkeeping.
Keep track of everything you earn and everything you spend as your business expenses. Save the receipts in one folder (I’d recommend taking a picture and saving it into the folder on your computer — physical receipts tend to fade out with time) and fill in the spreadsheet with your bookkeeping. You can do it either every month or at the end of the tax year.
Some apps help you keep track of your receipts. Those apps usually have an image recognition functionality — once you take a snap on the receipt, you don’t have to type the details in manually.
Expenses
One of the perks of working for yourself is that you can claim your expenses. This means that you can claim the money against the gross amount earned. Meaning the gross annual amount is less → thus there is less tax to be paid.
£20,000 earned — £1,000 claimed expenses = £19,000 gross earnings
£19,000(basic tax rate bracket)— £12,500 personal allowance= £6,500 to pay the tax from (and national insurance)
You can claim expenses that are related to your business. Say, if you’re working in tech, you can claim the electronic equipment, such as a laptop, a screen, a keyboard, a mouse, etc. and all the subscriptions you use for business, such as software subscription or stock subscriptions for graphics, images, videos, icons, templates, etc.
Bank account
You don’t really have to open a business bank account as a sole trader in the UK, but I’d recommend having a separate bank account for your business incoming and outcoming payments — just easier to keep track and do the admin.
If you’re planning to work for international clients, I’d recommend to go for the modern online banks that support multi-currency accounts. Especially, if you’re planning to go digital-nomading someday.
Insurance
As a business owner, you may have to have business insurance, such as professional indemnity insurance. Sometimes also an occupational personal accident cover — if you have to commute to or work from the client’s office. There are lots of different types of insurances, so do your research or speak to a professional. You may also need to have a licence, depending on the type of work that you do, or you may need an employer’s liability insurance if you are planning to employ someone.
If you’re a designer or if you’re just starting out, you may be fine working without it. However, if you’re a developer working with financial accounts, payment processing, data aggregation/collection, cyber security, credit reporting or trading, you will be obligated to have insurance, and, well, you will probably be better off with having one.
The insurance is there to protect you against any legal claims and disputes against you or your business. An example of a screw-up could be, say, you’ve made a mistake or lost the files, and now this is causing significant delays in client’s work and costing them money. They can make a claim against you. However, in the years that I’ve worked, I never witnessed anything like that.
Of course, freelancing and contracting may not be for everyone. Figure out what is important to you and what will work for you in the long run. Never measure yourself against anyone — comparison is the thief of joy.
Once you’ve reached a certain level of knowledge and skillset, you may find yourself working for 2–3 days a week, dedicating the rest to what is equally important to you in your life.
Working for yourself will allow you to plan your work and take time off when you need it and for as long as you need it. You may also consider taking a prolonged time off — a sabbatical-like mini-retirement — when you’ll be able to switch off, dedicate your time to learning new skills or do something that brings you joy and recharge your creative energy.
With corona virus storming the world, we’ve learnt that it is quite possible to work from almost anywhere and that no job is a “stable job”.
With remote working becoming a norm and more companies promoting flexible working, it may be the time to reevaluate our career paths and styles, as well as our life-work balance.
And that’s what life is, right? Minus and plus. The minus is tragedy, heartache, misery, failure, unhappiness… But life is also happiness, prosperity, good feeling. So here’s the key: learn to get on the good side of the way things work.
– Jim Rohn
