Working for yourself can seem like the dream job. Who wouldn’t want to avoid the daily commute, not to mention the demands of an impatient boss? Certainly, many Britons are deciding that self-employment is the right option for them — so much so that the UK is now fast-becoming Western Europe’s self-employment capital. The government says that there are now almost five million people in Britain working for themselves, up from the 3.9 million who were self-employed at the beginning of the financial crisis. There are countless others who yearn to ditch their employee status, but there are challenges that self-employed people must face and pitfalls that they can encounter.
The insurer Prudential claims that almost half of the UK’s self-employed population have no pension provision, and the estimate is that people working for themselves will miss out on anything up to £91,500 over the course of their working lives, purely because they do not benefit from employer contributions to a pension scheme. There is also the possibility that people will not have made the required 35 years of contributions needed at the moment to secure a full state pension, putting financial security in retirement seriously at risk.
Loans and Mortgages
There was once a time not that long ago when it seemed almost impossible for the average self-employed person to get a loan or mortgage. It would be fair to say that, in many quarters, it is still much more difficult to secure financial assistance in the form of a loan if you work for yourself than if you were in ‘regular’ employment. There is financial assistance available, however, if you choose the right lender. There are now specialist self-employed loans on offer such as the ones from Evolution Money, along with homeowner loans, which are much easier to obtain because lenders have the security of your home to fall back on if you were to default on the payments.
Working for yourself can be a complex business when it comes to paying tax. You may have problems with being put on the right tax code, and you can also face hefty bills at least once a year. This can make budgeting difficult, and then there are tax benefits that you miss out on. Self-employed people, for example, are not entitled to the usual termination payment tax exemption up to £30,000, which can have a major effect on finances at the end of a contract.
They may not seem to be worth much, but employee benefit schemes can really boost your pay packet. Self-employed people, however, miss out on the likes of private health and dental care, along with other bonuses such as gym membership or even free parking passes. There are also other benefits to working for a company other than your own, such as free eye tests if you work with a computer. Employers must pay for a free test if this is the case and must even fund some basic glasses if they are required.
Self-employment can be a turbulent road, especially when it comes to making regular payments. There are inevitably months when the budget is tighter than others, but there are often still the same bills to pay. Budgeting is inevitably more difficult for you if you are self-employed, and there is more risk of short-term money shortages. There is also the fact that you are not entitled to sick or holiday pay if you are self-employed. Unforeseen illnesses, for example, can lead to short-term cash-flow problems.
There is no doubt that there are pitfalls to self-employment, but there are also many benefits to be had. Careful planning and understanding the downsides and advantages can put you on the road to success and help to keep you there.