Becoming self-employed also means taking out insurance. If you would forget to take out certain insurance policies, this can, in the worst case, lead to losses in millions. As a rule, entrepreneurs should take out both personal and company policies. We will tell you which insurance policies for freelancers and the self-employed these are and what you should pay attention to when taking out a...
Part-time self-employment is a popular option, and for good reason. Enterprises which begin as part-time before becoming full-time tend to last longer. If you want to set up your own business on a part-time basis, there is a lot that needs to be taken into consideration.
- Starting your own business as a side job: what are the advantages?
- Starting out with part-time self-employment
- Concept of part-time self-employment
- Important steps to consider when starting a second job
- Coordination with your employer
- Registering with HMRC
- Part-time self-employment: Taxes
- Insurance for part-time self-employed workers
Starting your own business as a side job: what are the advantages?
You have a good idea for your own business, but you don’t really know whether the concept will be successful. Maybe you expect a longer build-up phase, or you don’t want to give up your main career. In any of these scenarios, part-time self-employment is a good option. You remain in an employment relationship, but still start your own business on the side. In summary, these are the benefits offered by starting out your self-employed business on a part-time basis:
Less risk when starting out
Maybe you’re unsure whether or not your business idea is solid. If you start it off as a side gig, you can test out your business concept with a lower risk level. Does the business work the way you planned? Do you get enough customers? You still have the opportunity to make changes to the business model if necessary. You have time to learn and prepare for full-time self-employment.
Help during the starting phase
Particularly in the early stages of self-employment, a regular income offers financial security. Depending on the desired activity, setting up a business can initially require high investments. The more you can borrow from your current income, the less dependent you are on savings and bank loans. In addition, during the start-up phase, you should expect your income to grow gradually.
More safety in all cases
It is also easier to bridge dry spells if you are only part-time self-employed. In addition, there is always the possibility that a company will fail. If you have another source of income, this setback is easier to cope with.
Starting out with part-time self-employment
So, you want to be self-employed but don’t know where to start? In principle, there are no restrictions for part-time self-employment. You can work doing whatever you want (as long as you fulfil the conditions of a possible professional code), and you can earn as much as you want. In practice, however, certain rules and restrictions must be observed. These include:
- Employees should always consult with their employer before beginning a self-employed side gig
- National insurance contributions need to be clarified
- Secondary income can have an impact on social benefits
Your primary occupation may affect your part-time self-employment (if you’re employed, a student, unemployed) side gig. In any case, you should make sure you are thoroughly informed on what needs to be taken into account before you begin working part-time on your side job with regards to taxation and national insurance.
Otherwise, the same rules apply to part-time self-employed workers as to other self-employed:
- You need to register your business with your Companies House
- You also need to register as self-employed with the Her Majesty’s Revenue & Customs (HMRC)
Concept of part-time self-employment
How you set yourself up for independent work depends strongly on what you want to do. Maybe you have an exciting business idea or you want to turn a hobby into a profession. In any case, you need to consider how much money and time you want to invest, what for, how much you want to earn in return, and how long it is likely to take you to reach your goal. In short: you need a concept for your planned part-time side job (a “business plan”).
This kind of concept, or plan, is important. You must organise your thoughts and recognise whether and under what circumstances your planned part-time work is worthwhile and what you have to do in order to achieve your goals. The plan will also help you to identify the risks you are taking with your side gig. How much capital seed do you need? Can you raise it yourself or do you need a bank loan? You may need to rent and furnish an office or workshop. The other extreme would be that in your spare time you are a web designer or copywriter on your home computer. Then you would not need any investments and you would hardly have any financial risk.
Important steps to consider when starting a second job
No matter how you want to set up your side gig, here are some important steps you should take to get started:
Check in advance whether you need a permit or special qualification to do your part-time self-employed work, and if so, which ones. Do you want to pursue a profession that requires a permit? There are licensing requirements for a wide variety of jobs, including:
- Property developer
- Financial services
- Driving instructor
- Debt collection agency
- Real estate agent
- Travel industry
- Translator (authorised)
These approvals are often linked to professional qualifications. Last but not least, many practicing trades are subject to the obligation to have a master craftsman certificate.
What self-employed category do you fall under?
In the UK, you can be self-employed as a sole trader, partnership member or limited liability company member (if the company is not classed as a corporation). It is important to make sure you assess what kind of self-employed worker you are to protect yourself from issues with the tax authorities later on.
Coordination with your employer
Whilst it is perfectly legal to have a part-time self-employed side job, be sure to consult your work contract to ensure that your company has not expressly forbidden it. If the business area that your part-time self-employed work is in is the same as your main job, you must also make sure that there are no non-compete clauses and that you aren’t engaging in a conflict of interest. Here’s a breakdown of the ways your side gig could negatively affect your main job:
Overexertion because of secondary employment
A part-time side job may be a bad idea if it places so much strain on you that you aren’t able to fulfil the duties of your regular job – for example, if it makes you constantly tired.
Many employers include a non-compete clause in their employee contracts. This is to ensure that you do not take the information, skills and contacts you acquire at your main job elsewhere (either to a new employer, or to a self-employed side job). Some employment contracts even contain a non-competition clause beyond the employee’s departure from the company. Be sure to peruse your contract carefully before beginning any self-employed part-time work to ensure that you are legally covered.
Sometimes the restriction of secondary activities by the employer may be permissible if the employee represents the employer’s business externally – as a manager, for example. An employee’s conduct in their free time subsequently has an effect on their employer, so they must also take into account the employer’s legitimate interests here, including when taking up a secondary job.
In any case, it is advisable to inform your employer about any planned part-time self-employment activities and consult with them about it. This will help to avoid potential conflicts at a later stage.
If you violate any of the points of conflict mentioned above, your employer is legally entitled to prohibit or terminate your second employment. If in doubt, consult with a legal professional before engaging in any secondary work.
Registering with HMRC
Whilst you may not be legally obligated to inform your employer that you are starting a side job, you definitely need to let HMRC know that you plan on engaging in part-time self-employed work. Registering with them is easy and can be done online on their self-employment registration website.
Part-time self-employment: Taxes
As with all forms of income, you will need to pay taxes on any money you make from your part-time self-employed job. If the main reason for your side job is to turn a profit, and the work is regular and continuous, then you qualify as self-employed for tax purposes. If you are self-employed, you can pay your taxes by filing a self-assessment tax return.
You will also need to make additional contributions to National Insurance on top of those made through your regular job. For any profits made on self-employed profits totaling more than £6,205, you will need to pay Class 2 National Insurance. This money is paid directly to HMRC, and you can register to make these payments online. For earnings above this, you will need to register for Class 4 National insurance. If your profits fall between £8,424 and £46,350 you will need to pay 9%, and profits of more than £46,350 will be charged at 2%.
Like full-time self-employed workers, those with a side job can use allowable deductions to reduce their tax bill. If you can prove that an expense is being used solely for your business, then you can deduct the cost from your tax bill. Deductions frequently expensed by part-time self-employed workers include:
- Space in your home used exclusively for business
- Car-related expenses that are exclusively related to business (mileage, gas charges for rideshare drivers)
- Tools or equipment required for the job
More information on what expenses can be deducted by a self-employed worker filing taxes can be found on the gov.uk website.
Insurance for part-time self-employed workers
If you are self-employed part-time, you should also be sure to insure yourself against damage caused by your second job. The most important ones to keep in mind include:
Business/self-employed liability insurance
Business liability insurance covers damage caused by your professional activity. These damages often have simple causes, but can be very serious. You might injure a customer on your business premises, or make a technical error as a craftsman – one window incorrectly installed and the house now has water damage. Major damage can also be caused with faulty software or viruses, which you could spread unwittingly via email.
If you use an office or workshop, inventory insurance will protect your inventory from various possible damages. This insurance can also be extended to include insurance against natural hazards (storm, flood, etc.), glass breakage or business interruption.