18 January, 2023
7 Key Benefits of Self-Employment
Self-employment can give you many benefits, both financially and personally. You can decide how to develop your small business, considering your financial interests and desires. This is why 4.7 million workers in the UK work for themselves, enjoying the financial benefits of being self-employed and preferring to be their own bosses.
Whether your desire to be self-employed is the next step on your career path or you are looking for a free-from-boss lifestyle, you need to know the pros of being self-employed and the challenges you can face. That’s what we will elaborate on.
Three Types of Self-Employment
Self-employment is a unifying name for everyone working for themselves, and here are three types of self-employment:
1. Self-Employed Contractors
Self-Employed Contractors are individuals who have been hired to perform specific tasks for clients, meaning that they are only paid for the work they do. The main feature is that they are not considered employees, so their clients, unlike traditional employers, do not need to withhold taxes from the payment for the work performed. Examples of self-employed professions are lawyers, journalists, accountants, electricians, plumbers, and even doctors.
2. Sole Traders
Sole traders are self-employed individuals who run their own businesses, usually under their own name. Although such a business is owned and operated by one person, it is not necessary that the sole trader operates individually. Often, they hire other people to help them.
There is no legal difference between an owner and a business entity in sole proprietorships. Although sole traders receive all the profits from the business, which is one of the benefits of being self-employed in the United Kingdom, they are also liable for all losses, which should be taken into account.
Partnerships are an agreement between several (two or more) persons on the joint management of a business, including the sharing of the financial rewards of being self-employed. It’s similar to the sole trader, except several people fully control the business.
Types of partnerships range from general partnerships, where all partners share obligations and profits, to other forms, where some partners may have limited liability. One form is the “silent partnership,” where one of the partners contributes capital to the business without being involved in day-to-day operations.
Key Benefits of Being Self-Employed
If you’re interested in managing your time well, then you’re wondering: what are the benefits of being self-employed? And here are some of them:
When you are self-employed, you set specific goals for yourself and are highly motivated to achieve them. All your efforts in the business will sooner or later bear fruit in the form of new customers, increased income, and other positive results for the company. Knowing that only you are responsible for the success of your business, and achieving your goals, will bring you greater satisfaction, especially if you are starting a business with no money.
High Earning Potential
While your income isn’t guaranteed if you’re self-employed, freelancers typically have much higher hourly and daily rates than full-time employees. Not only can you decide what hours to freelance, but you can also set your own prices, which will positively affect the amount of free time you have and your salary.
Freedom to Make Decisions
When you contract work for an employer, you may not always be able to do what you think is necessary for the company’s success. Even if they respect your opinion, they ultimately have the final say. In addition to the other benefits of being self-employed, you also get the freedom to choose branding, policies, clients, and other important aspects that will significantly impact your business’s success. Plus, you won’t have to accept work you don’t want to do. Instead, you can focus on the projects you enjoy.
In some jobs, the days are monotonous and boring; over time, you can get tired of what you do. However, one of the benefits of self-employment is that each day is unique. You can work with several clients on several projects or orders at once, so your work will not be monotonous. You will likely also do remote work on custom orders and spend time advertising, marketing, and reporting on your business. This “working-for-yourself” life is much more diverse than the average worker’s life in the UK. This is a significant advantage for those who want to try something new and are tired of the same actions.
When creating your own business, you can choose the location where you will work. You can find the right one based on many factors and arrange it the way you want. Also, as a freelancer, you can work from home, which may improve your work-life balance as you save a lot of time on the road. Finally, you can decide what conditions will be most comfortable for you: in a rented office or home.
Lucrative Tax Credit
The tax benefits of being self-employed in the UK can help your business not only in the initial stages of development but also in the future. Here are some tax credits you can qualify for as a self-employed person:
Working Tax Credit
You may qualify for a certain amount of money depending on your self-employment income. The working tax credit is calculated using your income for the previous tax year to estimate your earnings in the current one. At the end of each year, you will receive a tax relief extension package where you will be asked to verify your income for the tax year that has just ended. This is to make sure you get the correct benefits.
Council Tax Support
If you are self-employed, you are also eligible for Council Tax Support. When you apply, the competent authorities will assess how much income you receive from self-employment to determine if you are eligible for this benefit. You must meet the following requirements:
- Your income from self-employment exceeds the national minimum wage.
- You are in the first six months of a new business.
Thus, you can count on financial support through the first six months after opening a business, which is usually the most difficult period. In essence, Council Tax Support allows you to pay on a reduced bill, making it another key benefit for the self-employed.
Being self-employed, you will not be left without government support. Here’s what you can count on:
Like employees, self-employed people can get National Insurance:
- Class 2 if your profits are more than £11,908 a year. The cost is £3.15 per week.
- Class 4 if your profits are £11,909 or more a year. Cost — 9.73% on profits from £11,909 to £50,270 and 2.73% on profits over £50,270.
Employment and Support Allowance (ESA)
You can apply for Employment and Support Allowance if you are under retirement age and have health problems that affect how much you can work.
The housing allowance is being replaced by universal credit. You can apply for it if you meet one of the following criteria:
- You have reached retirement age;
- You live in temporary housing;
- You live in secure or supported housing with special amenities such as alarms or guards.
If none of these fit, you will need to apply for Universal Credit instead.
Downsides of Self-Employment
Besides the significant benefits of being self-employed in the UK, there are also some disadvantages. One is maintaining and self-executing all documents and filing tax returns with HM Revenue & Customs. Sorting your taxes can be time-consuming, so you must have the patience and perseverance to do all the paperwork properly. In addition, you will have to deal with your insurance premiums (NIC) and income tax.
Another downside of being self-employed is that, you will not have some of the rights available to a full-time employee, such as sick pay, annual leave, the right to join a union, maternity leave, and more. You will also need to arrange your own retirement if you work alone. Thus, you must be ready to face challenges that full-time workers do not encounter. It is up to you to decide whether to stay an employee in the company or start working for yourself. However, comparing the pros and cons of being self-employed, there are far more benefits.
Consider The Hoxton Mix Your Trusted Partner
We have described the benefits of self-employed business opportunities that may help you decide whether it is worth becoming an independent worker. However, if you would like additional or more detailed information, the experts at the Hoxton Mix will be happy to advise you. But that’s not all. We will help you start your own business by providing you with a self-employed business address and will explain how to register it.
What are the tax benefits of being self-employed?
The main tax benefits of self-employment are Working Tax Credit, Council Tax Support, Housing Benefit, and Child Benefit. This will help you with running the business alone.
What are the top benefits of being self-employed in the UK?
The main benefits of being self-employed include job satisfaction, independence, creative freedom, salary, and a better work-life balance.
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