Benefits of being self employed

lwcus78

Hi there,
I'm looking for some advice. I'm employed by a company but whilst negotiating a pay rise was told they can only pay me more if I become self employed. Would be roughly extra £20k. I am trying for a baby but my boss doesn't know this. If I stay employed I would get 90% pay for 6 weeks and then Statutory Maternity Pay thereafter. Also, I only get half pay for sick days.
I know there's less security by becoming self employed but myself and OH are in a position where we could accept this risk. I would appreciate any advice on the benefits and downfalls of being self employed. I am currently earning 40k.
Thanks

fengirl_2

This is a very shabby suggestion!
Your employer cant just make you self employed - what they are suggesting is that if they call you slef employed they wont have to pay you sick pay, holiday pay, maternity pay, NMW, etc and can get rid of you at will. You would give up all employment rights.
The test is the relationship between you and the employer and I would want HMRC to look at how the conditions of your employment have changed to make you self employed - otherwise, to me, this is just a device to save your employer money and having to be a responsible employer.

Pennywise

To be honest, if they were offering another £20k p.a. I would snap their hand off. The risk of you being wrongly classified as self employed is entirely with your employer. It is your employer who HMRC would go after if HMRC decided you weren't self employed - your employer would have to pay the tax/nic, etc that they should have deducted in the first place, but on a much higher "wage". As long as you correctly declare your self employed income on your tax return and pay your own tax and NIC, HMRC wouldn't come after you at all.

BUT, you have to consider what "rights" you have accrued. As Fengirl rightly says, by going self employed, you are giving away all rights to paid holidays and more importantly any redundancy payments. Statutory redundancy payments aren't that much, but if your employer has a long standing policy of making voluntary additional substantial payments for early retirement or voluntary redundancy, you could lose tens of thousands of pounds as yes, once self employed, they aren't under any obligation to continue to engage you and could easily get rid of you with NO redundancy, pay in lieu of notice, or anything else.

Once you are self employed, you really are on your own. No redundancy, miniumum level of statutory sick pay (subject to qualifying period of paying s/e NIC's), basic state pension only, no perks usually provided by larger employers (life insurance, health insurance, Gym, cars, etc).

It all depends on your current "package" of pay and benefits and your accrued employment rights, all of which you would lose.

lwcus78

Thanks both for your replies.
The current package is not great. I only get 1/2 sick pay for 1 month. They pay for my insurance and training costs which amount to about £400 per month. No health insurance/car allowance or anything like that.
I know I would loose out on SMP but I think I would then be entitled to Maternity Allowance.
My employer said he would guarantee me 5 days work a week for the next 2 years. Also, in my line of work there is demand and I could easily find other work if things didn't work out.
I had decided if I had a baby to return to work 3 days a week after 6-9months. If I go self employed this would allow me to return to work 2 days a week.
I do trust my employer and dont think he's trying to "screw me over".
What are the benefits of being self employed ie could I set some of my spending ie parking costs/petrol/car/business suits against tax. How does this work or could someone direct me to where I could obtain more info on this.
Many thanks x

Lotus-eater

We may be coming up to a recession, self employed are always the first to lose work. Unless he guarantees he will pay you for the work for the 2 years, even if you don't do it ........... which isn't going to happen is it? Then you can't say you will be fine for two years.
I would think very very carefully about going Self employed, especially as the revenue look if you do work for other people, not just all for one company.

gordonstights

lwcus78 wrote: »

I would appreciate any advice on the benefits and downfalls of being self employed.

Just make sure you don't need a mortgage for 3 years - my OH and I had a mortgage in principle back in May 2007 when I was employed. It ran out in August when I became self-employed and then two different brokers said the lenders would only look at my OH's salary for applying for a mortgage unless I had 3 years worth of personal accounts being self-employed. This may not be totally true but basically the point was being made that for the houses we were looking at my OH's salary was suffient to work on his alone, but I didn't think about this before I became self-employed and I wish I had known.

fengirl_2

As a self employed person, you include in your accounts all expenses incurred wholly and exclusively in the business - there is no set list as its up to each business to decide what is needed by the business. For instance, if we both had florists shops, I might decide to decorate my window with red silk for Valentiens Day, but you might decide to go for balloons - its the business owneer;s decision.
Having said all this, I still dont believe you will be self employed and that you are being used.

Pennywise

Also, once they have agreed for you to be self employed, watch out for them then going on to insist you operate through your own limited company (which their accountants would no doubt advise them). This puts the burden of proving you are "in business" onto yourself, and you could easily find yourself caught by IR35 which in effect taxes you as if you were a direct employee, reducing your scope for claiming expenses and taking a huge wedge of your income in tax, employee NIC and employer NIC - typically up to 50%. What tends to happen is the employer doesn't realise that it is they who become liable if their decision of self employment is challenged and overturned by HMRC, and on their accountants advice, will (probably at the last minute) say that you need your own limited company, which leaves them free of liability and passes it all to you.