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How much does it cost to become self-employed?

How much does it cost to become self-employed?
Image source: Getty Images


If you are thinking about becoming self-employed, then it’s a good idea to consider the costs involved before taking the leap.

These costs can vary depending on the profession, but there are some general expenses that anyone who is self-employed will be aware of. Let’s take a look.

1. Computer network

In the digital world, you will need a computing system. In its basic form, the hardware should include a computer or laptop, a printer, a scanner and a digital storage system for all electronic paperwork.

You will need to make sure all files are securely stored and backed up. This is particularly important if you work in a profession that requires confidentiality, such as counselling or legal representation.

In terms of software, companies such as Microsoft offer virtual office network services for a monthly fee. This includes basic software for producing documents and spreadsheets.

2. Premises

If you decide to work in an office, you will have to factor in running costs such as rent, utilities and business rates.

If you decide to work from home, you will need to designate a room or space as your ‘home office’. You will need to buy furniture and additional storage.

Remember that if you are self-employed and working from home full-time, your utility bills will increase. Take this into consideration when working out the total cost.

3. Broadband

Make sure you have the appropriate broadband service to meet your needs. If you intend to work from home, your existing broadband tariff may not be suitable.

In some circumstances, it may be worth investing in a separate line to ensure you have an uninterrupted service.

4. Healthcare and dental

Here in the UK, we have a free healthcare system. However, many companies offer healthcare plans that include services such as regular dental hygiene treatments and health and wellness check-ups.

If you would like to access these services, you will need to factor this in as an additional cost.

5. Tax and National Insurance

If you are self-employed, you will need to do your self-assessment tax return at the end of each financial year.

One possible option would be to hire someone to do this for you. This will be an extra expense, but in some circumstances it can be worth it.

6. Accounting or Bookkeeping

It might be worth employing someone to keep track of your business accounts throughout the year. They could also submit your tax returns on your behalf.

The benefit of self-assessment tax returns is that you can claim tax relief on certain expenses. This will reduce your tax bill, so in some situations the cost of hiring a professional is worth it.

7. Holiday and sick pay

One downside of working for yourself that your time is your money, as opposed to your employer’s money. Any time taken off sick or as holiday is time that you are not earning money.

However, that doesn’t mean you have to work every hour of every day without a vacation. In addition, you should not be dragging yourself out of your sick bed.

What you need to do is work out your expected annual salary. The time you will need to earn it should not include your vacation time.

A good rule of thumb would be to use the amount of annual leave you had in your previous job. Therefore, your earning expectations will be met without sacrificing time off.

When it comes to self-employment you need to play the long game. Avoid overworking and take regular breaks. This approach could prevent unnecessary sick leave.

8. Pension

This is something that often gets overlooked by the self-employed, but retirement planning is an important consideration.

It’s probably a good idea to work out your intended pension contributions before you start self-employment. Ideally, you will need to set up a personal pension scheme and pay into it on a regular basis.

9. Insurance

The type of insurance you will need will depend on your profession. As a general rule, if you can’t afford the appropriate insurance cover then you can’t afford to be self-employed. It’s simply not worth taking the risk.

The types of insurance you may need are as follows:

  • Public liability – protects against claims made in the event of injury or damage to other parties.

  • Professional indemnity – protects against claims in the event of financial loss to other parties.

  • Business equipment – which will allow you to continue trading despite damaged equipment.

Take home

There are many things that need to be considered before you become self-employed. Plan as much as possible and seek professional help where applicable.

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