When Is The Right Time to Go Freelance?
Is it the right time for you to go freelance?
It can be difficult to know when is the right time to leave permanent employment. We’ve spoken to countless individuals who dream of the freedom of self-employment, but simply feel that “now isn’t the right time”. The likelihood is, there will never be a perfect time to go out on your own, since you can’t guarantee complete security when you take the leap. However, with some hard work and the back-up of accountancy and book-keeping support from JSA, you can make the right preparations to set yourself on the path to success – so you can feel comfortable that NOW is a great time to go freelance.
There are lots of factors to take into consideration when you’re thinking about self-employment and it can feel complicated, but don’t worry, we’ve helped thousands of freelancers take the first steps on their journey to successful self-employment so we can help you overcome the hurdles and enjoy the freedom and flexibility of contracting.
In this article, we outline some questions you can ask yourself to determine whether now is a good time for you to take the leap:
1) Are the market conditions right?
One of the factors to consider before you get started is the current state of the employment market and whether opportunities would be readily available if you were to set out on your own. Of course, this will depend on the sector you’re in and the services you plan on offering. However, since the coronavirus pandemic, our world has been flipped upside down, remote working has been normalised, and most sectors have adapted to completely different working processes and environments. This is great news for the self-employed because organisations are more accustomed to flexible working arrangements.
Another thing to bear in mind is that while COVID hit permanent employment hard, with 11.5 million people furloughed in the first 3 months of the pandemic and many losing their jobs altogether, small and large corporations alike are now getting ready to bounce bank. Recovering companies and startups are ready to acquire additional support, but may not be prepared to hire permanent employees yet. This is where the freelance market can step in to bridge the gap by providing the services hirers need on a flexible basis.
In terms of the economic cycle, then, – there has never been a better time to set out on your own since as we come out of covid and the recession there will be a lot of freelance work appearing. This year is for freelancers, so embrace the change and grab this opportunity.
2) Are you financially prepared?
Unlike permanent employment, when you’re self-employed you don’t have the same access to employment rights, protection, and financial security, so you must make some financial arrangements before you leave your permanent position – not only for the short-term but for your future too.
The right arrangements will depend upon your personal circumstances, so you’ll need to take tailored advice, but usually, the most important aspects to consider are your pension, savings, and mortgage requirements.
- Pension: You are required to make your own pension arrangements when you’re self-employed, so it’s worthwhile speaking with a financial adviser and exploring your options.
- Savings: Since there’s no guarantee you’ll have a consistent stream of work when you’re self-employed, you must think hard about the savings you have and how easily accessible they are. It’s important to take into account times when you may not be able to find work or you wish to take holiday, plus any long-term retirement arrangements in addition to your pension.
We always recommend setting aside emergency savings to cover at least 3 months’ worth of income. This way you can get started on your own without fearing financial instability.
- Mortgage: If you’re looking to buy a house in the near future, it’s important to consider mortgage eligibility requirements. For example, when you work as a self-employed individual through your own Limited Company, your lender will likely require at least 2 years’ worth of full accounts to prove the stability of your income – no matter your credit score. So the timings of plans like this should be taken into consideration before you set out on your own.
3) Have you chosen a trading structure?
Before you set up your business, you will need to decide on a trading structure that works best for you. The right choice will depend on your circumstances and growth plans, as well as the amount of admin you’re willing to take on because each route has a different setup process and ongoing requirements.
The most common options to consider are:
- Limited Company: A limited company is its own legal entity, separate from its shareholders and directors (even if you are just one person acting as both). Your company will have a separate bank account, its own income and expenditure, can enter into its own contracts, and has to pay its own taxes.When we’re your limited company accountant, you’ll have access to our quick and simple online portal which allows you to manage your invoices, expenses, and bookkeeping requirements 24/7. Plus, you’ll have access to your own dedicated accountant whenever you have questions – taking the hassle out of the financial side of your business, so you can focus on delivering a great service.
- Sole Trader: A sole trader is a self-employed individual who is the sole owner of their own business. It is simple because you can simply start trading, filing a Self-Assessment Tax Return at a later date – which we can help you with. This structure is easy to get you started, but remember, unlike for a limited company, a sole trader business is not separate from you as an individual. Some people prefer to have a limited company to keep their business and personal affairs separate and reduce their personal liability should anything go wrong.
- Umbrella Employment: Umbrella contracting is a great way to enjoy the freedom and flexibility of contracting while still maintaining access to a wide range of employment rights, protections, and benefits. It is often the first step contractors take on their journey when they’re not quite ready to start a Limited Company. When you join an Umbrella, you become their employee and receive employment benefits whilst retaining the ability to work as a contractor.
If you’re unsure which option is suitable for your situation, don’t hesitate to get in touch with our friendly advisers who will be happy to speak with you to understand your circumstances and requirements and recommend the solution that’s right for you.
4) Do you understand the start-up and ongoing requirements?
You’ll also need to think about the tasks involved in setting up. If you chose an Umbrella or sole trader structure, that’s simple! As a sole trader, you can begin work straight away, completing a self-assessment tax return at year-end (we can help with this). If you go Umbrella, again, that’s simple. You join our Umbrella company and get to work, whilst we sort out tax, National Insurance and any other compliance issues. However, if you decide to go down the Limited Company route, there are some set-up tasks that need to be undertaken. Our service includes everything you need to get started, such as:
- Choosing a name
- Determining your SIC code
- Appointing directors & shareholders (even if they’re both you)
- Setting up your website & social media
- Registering your company with HMRC
- Making insurance arrangements
- Setting up a registered address
- Opening your business bank account
- Setting up bookkeeping arrangements (JSA’s online portal is a great place to keep on top of your finances and keep a regular record of invoices you’ve sent to clients and company-related expenses, accessible 24/7).
- Registering for self-assessment tax
Note: You won’t need to register for VAT until your company begins earning or is projected to earn over a certain threshold (£85,000 for 2021). So, while it’s advisable to be aware of the current threshold, this isn’t something you should worry about straight away – speak to us for more details.
This may seem like a lot to think about, but don’t worry. You don’t have to rush into anything. Many people work through this list of requirements slowly. So, make sure you take your time to get everything right. You can download our Guide to Making A Success of Freelancing to get you started with some more detailed information on all of these requirements.
And remember, if you’re nervous or not quite sure if the time is right, you can always complete all the set-up tasks and then wait a while before you begin trading. This way, you’re taking steps towards your goal and you know as soon as you do feel ready, you can dive right in!
Expert advice & assistance
There are advantages and disadvantages to going freelance at any time. But if you’re ready to start making the most of the freedom, flexibility, and independence that comes with setting out on your own, then there are plenty of ways to minimise your financial and administrative concerns with careful planning and help from an expert adviser.
By collaborating closely with a specialist contractor accountant, like those at JSA, you’ll already be starting with a competitive advantage since we’ve done this thousands of times before and can provide you with all the advice you need to get set up and trading successfully.
And don’t forget, if you need some personalised advice, we’re always available on 01923 257257.