For those within the technology sector who long to be their own boss, the thought of moving away from stable employment and branching out on their own can be a daunting one. When your experience and knowledge pool within the industry reaches the level where this could be possible, you are likely to be in a job with serious benefits: a pension, health cover or sick pay, not to mention the regular income.
Some of the positives of moving into a consultancy or contractor role can be easily identified, with increased flexibility of your time being a major one. Being your own boss gives you the freedom to pick and choose when you work, making it appealing to those with family.
However, the downsides also become obvious fairly quickly: any time you don’t work, you are not earning an income – a usual rule of thumb is working for ten months for a yearly wage. You will also have to position yourself correctly within the marketplace – qualifications and certificates become more important when selling your services. These elements can be expensive as not only are you paying for the training, but that time is also lost potential for earning.
In order to successfully transition to self-employment, you must research your target area thoroughly and have faith there will be enough work to sustain you while you build contacts, even working out of hours while still in employment, if possible. If you try and wait for the right time, you may find it will never materialise – there will always be an element of trust in taking the leap.
While the technology element of your work will probably be the most rewarding, providing you with both job satisfaction and the ability to learn about new products, the financial side is also very important. Invoicing, bookkeeping and tax calculations could take up a lot of time, and will require some expertise if they are to be done properly. Do not be afraid to outsource this work in order to free up your time and allow you to concentrate on the areas that will bring in the money.
One of the most important areas to look at where tax is concerned is the government IR35 legislation, which affects all contractors who do not meet HMRC’s definition of self-employment. When it comes to paying yourself, whether that is as part of a limited company or using the dividend method, the tax and expenses elements of being self-employed can be very tricky, with the potential penalties being considerable. It is therefore highly advisable to seek IR35 advice from experienced professionals.
Being self-employed can be very rewarding, with financial and work-life balance being high on the list of benefits, but do not underestimate the amount of work and the number of potential pitfalls that go along with it. Understanding your target audience, your competitors and the appropriate legislation will be no mean feat, but the satisfaction of being your own boss when everything works out will make it all worthwhile.