1. Introduction to Self Employment
Self employment means working for yourself rather than being employed by a company. You run your own business, set your working hours, and take responsibility for your income, taxes, and expenses. Self employment can cover freelancers, contractors, small business owners, and sole traders.
2. Who Counts as Self-Employed?
You are considered self-employed if you:
- Run your own business and take responsibility for success or failure.
- Decide how, when, and where you work.
- Provide goods or services directly to customers.
- Handle your own taxes instead of receiving PAYE (Pay As You Earn).
3. Registering as Self-Employed in the UK
If you choose self employment, you must:
- Register with HMRC as a sole trader.
- Keep records of income and expenses.
- Complete a Self Assessment tax return each year.
- Pay Income Tax and National Insurance contributions.
4. Taxes and National Insurance for the Self-Employed
- Income Tax – Paid on profits above the personal allowance.
- Class 2 National Insurance – Flat rate if profits exceed a set threshold.
- Class 4 National Insurance – Percentage of profits above another threshold.
- VAT – Required if turnover exceeds £90,000 (as of 2025).
5. Advantages of Self Employment
- Control over working hours and clients.
- Greater independence and flexibility.
- Potential for higher earnings if successful.
- Opportunity to pursue passion projects.
- Tax-deductible expenses reduce taxable income.
6. Challenges of Self Employment
- No guaranteed salary or paid holidays.
- Responsible for managing taxes and paperwork.
- Irregular income and cash flow issues.
- No automatic pension contributions.
- Need to find your own clients or customers.
7. Financial Management for the Self-Employed
- Keep detailed records of income and expenses.
- Open a separate business bank account.
- Save regularly for tax bills.
- Consider hiring an accountant for advice.
8. Insurance and Legal Considerations
Self-employed individuals may need:
- Public Liability Insurance – Covers accidents or damage.
- Professional Indemnity Insurance – Protects against professional mistakes.
- Health and Income Protection – Covers illness or loss of income.
9. Self Employment vs Employment
- Employment: You receive a salary, holiday pay, and benefits. Taxes are deducted automatically.
- Self Employment: You handle taxes, take on risk, and control how much you earn.
10. How to Succeed in Self Employment
- Build a strong personal brand.
- Network to find new clients.
- Continuously upgrade skills.
- Plan finances carefully.
- Stay compliant with HMRC regulations.
Frequently Asked Questions
1. How do I know if I’m self-employed?
If you work for yourself and aren’t paid through PAYE, you are likely self-employed.
2. Do self-employed people pay more tax?
Not necessarily—self-employed workers can deduct allowable expenses, which often reduces taxable income.
3. How do I get paid if I’m self-employed?
Clients pay you directly, and you manage your own invoices and payments.
4. Do I need a business bank account for self-employment?
Sole traders don’t legally need one, but it’s recommended to separate finances.
5. Do self-employed workers get pensions?
No automatic pension contributions—you must set up your own.
6. Can I be employed and self-employed at the same time?
Yes, you can work for an employer and also run your own business.
Conclusion
So, how does self employment work? In simple terms, it means taking full responsibility for your work, income, and taxes. While it offers freedom and independence, it also requires discipline, organisation, and resilience. For many, the rewards of flexibility and control outweigh the challenges of managing irregular income and tax obligations.