If you are thinking about becoming a self-employed electrician, we would always recommend working with an experienced electrician first, once you have completed your training. This will allow you to gain confidence and experience before going it alone. You can do this by working as an electrician’s mate, working for an electrical contracting firm, or you may have completed an apprenticeship.
Once you feel confident that you have gained enough experience and are competent to go it alone, you may be ready to take the next step.
Things to consider before becoming self-employed:
Becoming self-employed effectively means that you are setting up a business. However, before you go much further, there are certain things you will want to consider, which include:
- How will I acquire new customers?
- How would I cope during quiet periods of no or little income?
- Do I have enough money to get set-up? (i.e., buying new tools and a vehicle).
- Can I get by without having the benefits of paid holiday, sick pay and pension contributions?
- Am I okay working on my own?
- Can I manage my cashflow, record keeping and tax returns?
- What insurances do I need?
- Do I need to join a competent person scheme?
The advantages of being self-employed
There are plenty of advantages to being self-employed and these include:
- Being your own boss: You get to have a more varied workload as you get to choose the type of work you take on.
- Being able to work with more flexibility: You will have more control over the hours you work, which will allow you to arrange your day around any other commitments you may have.
- Being able to achieve a much higher income: If you put in the hard work, you will be able to earn more. This is mainly because you can charge hourly or day rates, which can be higher than some standard salaries. Day rates can vary depending on your experience and region.
- Offset your tax liability: There are certain costs that you are able to deduct from income when calculating your tax, e.g. your equipment/tools, mileage, stationery and others.
The disadvantages of being self-employed
Of course, there will always be some disadvantages to being self-employed and these include:
- Start-up costs: You will need to have in place some money to get you started as you will most likely need to buy new tools, a van/car, insurance and others.
- Finding customers: This can be challenging to start, and you will need to find ways to advertise your services to get noticed.
- Income: Your income will no longer be consistent. You will need to ensure that you can keep up with bills, loans, mortgages, rents etc. You will also need to bear in mind that during times when you are off work due to sickness or holiday, you will not be getting paid.
- Admin: When you work for yourself, you will be responsible for the admin side of your business, i.e., scheduling in work, quoting, invoicing, insurance, etc. You will have to ensure that you comply with regulations.
Sole trader or company?
Once you have decided to go the self-employment route, your next choice is whether to start up as sole trader or a limited company.
An advantage to becoming a sole trader is that it is relatively easy to set up. There are also certain expenses you can subtract from your income when calculating your taxable profit. You can check the government website for more details, but these include business related travel, business insurances, stock, and others.
Disadvantages are that it could be hard to raise finance as lenders tend to prefer to lend to limited companies. The tax rates aren’t always great, especially when you reach a certain level of earning. Something else to consider is that, as a sole trader, you are the sole owner of the business and, as such, have unlimited liability. This means that if your business finds itself in debt, you are personally liable and, if things go wrong, you could end up losing your personal assets.
A limited company has its own legal identity and, as such, is separate from its owners and directors. A limited company has the benefit of having limited liability, meaning that, should something go wrong, your personal assets would not be exposed.
Limited companies are also more tax efficient as you pay corporation tax on any profits rather than income tax. You can also claim tax relief on business expenses. There are more allowances and tax-deductible costs that can be claimed against as a limited company. Increased administration aside, there are other benefits:
- Once registered, your company name is protected.
- You will have limited liability.
- Increased tax-efficiency.
- You can take a yearly dividend.
- You will have greater borrowing power.
- Your reputation and credibility among customers should improve.
The disadvantages of a limited company are that there is a lot more paperwork and legal fees to consider. These include filing an annual return, as well as and annual accounts. You can eithertake care of these yourself or hire an accountant to file them for you.
As a limited company there are certain things you will need to do if you are changing from sole trader:
- Decide if you are going to be the only director or whether you want others involved.
- Decide on a name for your company.
- Register your business.
- Set up a new business bank account specifically for your limited company.
- Let your insurer know that your legal structure has changed.
We would recommend speaking to a financial adviser or accountant for some sound tax advice before making your decision regarding which route to take.
