Section 5: Self Employment
Supporting Director-level Independents
Self-employment means employing yourself – being your own boss.
According to current statistics, 4.9m people are now self-employed either full-time or part-time. Self-employment has accounted for some 45% of all employment growth in the UK since 2008. It is also worth highlighting that the UK is the only G8 country to have seen a significant rise in self-employment this century.
A more detailed analysis of the changing employment picture is set out in Section 4 under ‘The Self-Drive Worker Concept’. The metrics supporting this analysis are based on the ONS monthly employment statistics (EMPOI) – www.ONS.gov.uk. . You may also like to review some interesting data on www.resolutionfoundation.org.
There is no doubt that the nature of working patterns is changing and this is all having an effect on the UK’s employment law, tax system and welfare state.
The key point is that you have some options on the ‘constitutional’ way you decide to operate. This section does not go into depth on the technical aspects of Self-Employment (accounting, tax, legal) as these are covered in detail in Section 6 – Technical Topics Contributions – Accounting and Tax.
Have a good look at – www.ipse.co.uk/
IPSE writes:- The Association of Independent Professionals and the Self Employed, is the voice of the UK’s self-employed population who make up one in seven people working today. We make sure freelancers, interim managers, consultants and contractors are represented to Government. By producing insightful, hard-hitting research and effective policy campaigns, we fight to create a better environment for the self-employed to run their businesses and ultimately, ensure our economy remains one of the most flexible in the world.
About IPSE
The Association of Independent Professionals and the Self Employed (IPSE) is the voice of the estimated 4.9 million individuals working for themselves in the UK. IPSE is the largest association of independent professionals in the EU, representing over 67,000 freelancers, contractors and consultants from every sector of the economy. It’s a not-for-profit organisation owned and run by its members. It was set up when IR35 was introduced and, at that time its membership consisted of IT Contractors but now includes independent professionals from other sectors. .
What is IR35? – From Wikipedia
IR35 refers to the United Kingdom‘s anti-avoidance tax legislation designed to tax disguised employment at a rate similar to employment. In this context, “disguised employees” means workers who receive payments from a client via an intermediary, for example, their own limited company, and whose relationship with their client is such that had they been paid directly they would be employees of the client.
Before IR35 was introduced, workers who owned their own limited companies were allowed to receive payments from clients direct to the company and to use the company revenue as would any small company. Company profits could be distributed as dividends, which are not subject to National Insurance payments. Workers could also save tax by splitting ownership of the company with family members in order to place income in lower tax bands. (This latter practice was recommended by government publications advising on setting up family businesses, but attacked as tax fraud by other government departments, notably the Treasury. It came under separate, ultimately unsuccessful attack in 2007. Professional advisors now do not recommend that family members are allocated shares in the company unless they perform a significant role in the business (not just the bookkeeping).
IR35 in practice.
You need to decide whether you are inside scope of IR35 or outside scope. If you trade as a sole-trader you will probably be caught by different legislation. One of the most comprehensive guides to determining employment status is the IPSE one – drafted in 2017 partly in response to the Taylor Report.
If the contractor’s contract is in the public sector, it’s up to the engager (the contractor’s client) to determine whether IR35 applies. If it does, the engager will place the contractor onto their payroll and will deduct income tax and National Insurance before paying the contractor.
If the contractor’s contract is in the private sector, the rules are due to change for contractors working with medium to large sized clients in the private sector from April 2020. Like the public sector, these clients will have to determine whether the contractor falls inside or outside IR35.
IPSE publish a comprehensive guide to IR35 – www.ipse.co.uk/ir35-hub-ipse/guide-ir35-from-ipse.html
Determining IR35
Whether an independent worker on contract is inside scope or outside scope depends on an interpretation of:-
- Right of Substitution – Does the contractor have to carry out the work personally, rather than being able to send a substitute?
- Mutuality of Interest – Does the client have to provide the contractor with work, and/or does the contractor have to carry out any work that the client requests?
- Control – Does the client have control over how, when and where the contractor carries out the work?
Answers of yes to these questions will indicate a quasi-employment relationship. You can also use CEST, which is HMRC’s online tool to help determine IR35.
Note that HMRC will look at what actually happens (or would happen) in practice, rather than the terms of the contract. HMRC will also look at other factors, such as whether the contractor has an office at the client’s site, an email address and/or job title indicating that they are part of the client’s business.
This section does, however, set the scene and we make the following points:
- If you start working for yourself, you are classed as a sole trader. There are other business structures apart from sole trader, for example setting up a limited company or a partnership arrangement of some type. Each business structure has different taxation and management implications – see Section 6 – Technical Topics Contributions (TTC).
- Each of these structures has pros and cons dependent on your personal circumstances and what you are trying to achieve. As such you need to discuss them with a professional accountant and possibly a lawyer too.
Overview & Key Points from the Technical Topic Partner
Chris Dunn of The TDA Transitions & Learning Organisation Ltd has been advising senior business people on career transition matters for over 30 years.
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Chris DunnTDA Transitions & Learning Organisation Ltd
Contributor Material from Technical Topic Contributors (TTC)
If you would like to make a comment that others can read, see where marked TTC at the end of every Section. This where you can make your Contributor comment – which is emailed to [email protected] - and published after screening. Please include your name and contact details so that other readers can get back to you. The real value in this Section– for all Readers – will doubtless come from learning from other Independents’ experiences and knowledge – what works and what does not work – things to do and things to avoid.
To get started as a Technical Topic Contributor click here.
Context and Objectives
The Accounting & Tax TTC topic dovetails with this section as setting yourself up for success and getting the best-fit building blocks in place must be a major consideration.
The focus however for the content that follows is very much about you and helping you to…
- Get your mindset right
- Get your overall approach right
- Put focus on your personal objectives and on the skills and behaviours you will now require as a self-employed professional
The work that you have already done in Section 3 will be revisited but this time within the specific context of your decision to go self-employed – What will be different? What new skills will you need?
Within this section you will be able to revisit and refine your thinking:
- Your personal objectives and goals for your future lifestyle
- Your strengths, achievements, interests and motivations
But, this time, our materials will enable you to ‘anchor’ your responses in the context of self-employment.
So what’s different about Self-Employment?
- You set the business direction and marketing plan
- You decide on the agenda for your business and the whole way it will be achieved
- You find the client, win the business, fix the price and payment terms, bank the revenue
- You manage your own time, business and professional affairs, including your accounts, tax, expenses, legal requirements, insurances, pensions and everything else related to running and managing your business
- You set the arrangements for anyone you ask to work alongside you, you manage their performance and remuneration
- You deal with any performance / relationship issues as the ‘buck really does stop with you’
- Anything financial is personal as it directly affects you, so any spend decision and action comes back to you whether it is for investment or expenses purposes. ‘Is x genuinely recoverable from my client work?’ becomes a meaningful question as does ‘Am I getting good value by attending x conference?’ It’s your sign-off and it’s your pocket. Your company credit card and account is yours.
- Managing your cashflow, handling late payment situations take on a new meaning and it really makes you think about the way you sign-up deals. Business terms, for example, are now down to you.
- The bottom line is that it is personal as there is truly a straight line between effort and reward
The Six Module Self Employment Route Map: Starting Up, Preparation and Planning
To assist you in thinking through the practicalities of “Start Up” we provide you with a DIY framework. To get the best value out of the materials provided please review the Work Module instructions and materials below.
The six modules have been designed to help you think things through systematically. Treat this as work in progress and constantly jot down your initial assessments and core assumptions before pulling everything together to talk them through with your Supporter and accountant.
Modules 1 and 2 focus on you, your skills, behaviours and aspirations and link directly to what you want to achieve as a business. The ‘engine’ of your business is your Marketing Plan which is why we have put this centre stage.
Modules 3 and 4 focus on how you will win business, position yourself in the market and how you will organise and manage your time to get the best possible balance.
Modules 5 and 6 focus on the Business Plan and we provide a format for you to review your progress regularly.
Work Modules
Here are 6 work modules to help you generate your own ideas and thoughts. Feel free to print them off and discuss with a friend, filling in the forms where advised.
Please read the introduction document first as this gives an insight into what the modules offer and how to use them.
Reading
- Starting Up on Your Own – How to Succeed as an Independent Consultant or Freelance
Mike Johnson - 9 Essential Steps to Start a Small Business
Darrell Zahorsky - What You Need to Know About Starting a Business
Kevin Duncan - How to Start a Business and Ignite Your Life
Ernesto Sirolli
YouTube has a host of small business-related video clips. These typically highlight the top 10 tips to starting up and they also provide specialist material on topics such as marketing and selling.
To obtain more advice on how to put a business plan together, I would suggest:
- Obtaining a start-up pack from your bank. All major banks have useful frameworks and templates.
- Talking with your accountant
- Talking with other self-employed and small business contacts
- Business Model Generation – Alexander Osterwalder
- The Ernst & Young Business Plan Guide
- Entrepreneur.com – How to Write a Business Plan
- My Own Business Institute – How to Write a Business Plan
- www.lawdepot.uk – This provides information on what should go into a business plan, who should write one and how to write it. It gives access to business plan templates.
The emphasis on business planning books and services tends to be that you are putting the plan together in order to raise monies, so bear this in mind when reviewing your options. I.e. use whatever is relevant to your needs. Take advice before you start!
- Marketing Guide for Small Business
Srinivas Pabbaraju - The One-Page Marketing Plan Audio Book
Allan Dibb - The Value Driven Business
Benjamin Teal
- The Art of Client Service
Robert Solomon - Flawless Consulting
Peter Block - The Consultant’s Toolkit
Mel Silberman - TheTrusted Adviser
David Maister, Robert Galford, Charles W Green - Humble Consulting
Edgar Schien
- SPIN Selling – Situation, Problem, Needs, Pay-Off
Neil Rackham
(This book is excellent. Neil Rackham is a genius and many sales models stem from his pioneering behaviour analysis into what makes for success in sales scenarios.) - Newbie’s Guide to Selling Face-to-Face: Quick Start for Consultants, Freelancers, New Self-Employed, Career Changers, Start-ups
Michael McGaulley - How to Sell Face-to-Face Survival Guide
Michael McGaulley - Secrets of Question-based Selling
Thomas Freese - Relationship Selling: The Fine Art of Consultative Sales
Atul Uchil - Selling to the C-Suite – What Every Executive Wants
Stephen J Bistritz - Consultative Selling
Mack Hanon - Consultative Selling for Professional Services
Richard White - What Great Salespeople Do
Michael T Bosworth and Ben Zoldan
For those more interested in starting a business, rather than purely marketing your own skills, I refer to the book I co-authored called ‘Starting a Business on a Shoestring’. This was written some years ago in the 1980s but the principles still apply and copies can still be obtained on Amazon if wished. The last two chapters concentrate on Writing a Business Plan and Reviewing Your Business Plan.
Behaviour Profiles: What style of independent will I be? What will I naturally enjoy? What will I need to work on?
I mentioned this previously in this section and in Section 3. It is a profile that helps you to understand:
- Your style and approach to people, events and situations and to your values
- Your core and supporting behaviours
Understanding your behaviour preferences in 121 and group situations becomes much more important as a self-employed Independent – YOU are the business. This type of personal diligence is worthy of high focus. The outputs can be directed to help you run your business more effectively, in particular to help you to get your approach right with clients and to win business.
BASIS can provide you with a personal report which highlights your behaviours divided into three categories – Energy, Exploration and Focus. Less than 2% of people offer a balanced profile with more than 60% showing a strong preference of one particular style. The BASIS model provides feedback based on gaps in your scores, not on the scores themselves. This gives powerful information about your behaviour stock levels and you can see clearly where you are strong and what behaviour areas you need to develop.
A unique feature of BASIS is that it is possible to identify the past and present trends within your overall behaviours – what is rising and what is dropping. This can be very useful to understand your stage and state of development today but it also poses questions as to what you need to work on to handle your transition to Independence.
At rest and under pressure – because BASIS is based on preferences and tolerances around specific enterprise behaviours, it is possible to identify the types of situation that can lead to stress. As such, it can help to explain your likely internal experience in different scenarios and also explain what others would observe.
The original BASIS research was set in the context of entrepreneurial environments – What behaviours best match different stages in the growth of a business? It does not set out to define an Ideal template, there are many combinations that can be successful, but it does set out to enable individuals to understand ‘stock’ levels and to think about their likely responses and plan accordingly. The BASIS report contains an action plan focusing on those areas that are important to develop.
Forewarned is forearmed!
For further information, please contact [email protected]
Pricing as follows:
- Personal feedback report plus ‘key point’ letter with access to telephone support. £97.50 (including VAT)
- 121 BASIS feedback session (1 hour) is an additional £150 (including VAT)
Over the coming months and years ahead, Working Free will expand its Additional Resource references to signpost users to relevant organisations. This will take time and feedback from you, so do let us know about organisations and resources that you personally have found useful.