Engineers with a certain level of experience can choose to branch out and become selfemployed instead of working exclusively for one employer. This is true in almost every sector. There are clear benefits to becoming selfemployed, but what needs to be considered before going it alone and what are the working options available to engineers in today’s marketplace?
With the current economic conditions in mind, a supply of experienced self-employed engineers has never been more important for organisations to stay competitive. Taking the energy sector as an example, there is a skills shortage issue across all major areas, especially energy assessors for Energy Performance Certificates. Self-employed engineers can provide important temporary or project cover for organisations and consultancies during periods of peak activity. No business wants to have to turn work down and lose money because it does not have the necessary qualified people.
What’s more, the energy sector has never been busier. There is a growing demand for Carbon Trust money saving energy surveys. Hidden energy costs are present for every business, and often remain buried without the expertise of an accredited engineer to help organisations curtail energy wastage and save money, while reducing carbon dioxide emissions that contribute to climate change.
Going self employed
There are two main types of self-employment for engineers – setting up your own business or working as an hourly-paid contractor for a large engineering firm. The hourly rate can be as much as £60 for an experienced chartered engineer, although recent graduates would get around half that.
Self-employment often works best for those engineers who are independent, self-motivated, enjoy autonomy and prefer variety in their work. The main drawbacks to self-employment are a lack of company benefits such as paid holidays and sick leave, and job security. In addition, continuity of work is an issue. It can often be a ‘feast or famine’ situation, which has cashflow implications for selfemployed engineers.
Many self-employed engineers also find it difficult to market themselves and their services whilst they are busy working on a project, as well as keep up with the general administrative burden from paperwork, tax and legal obligations. Finally, some engineers also bemoan a lack of IT support compared with what is often available while they are working for a company.
When an engineer is considering self-employment, there are also a number of minimum legal/best practise requirements that must be fulfilled. As a very basic checklist the following points should be addressed at the start, although as the business develops there may be other legal and tax issues to bear in mind.
- Register as self-employed with HM Revenue & Customs (HMRC)
- Obtain any permits and planning permission that you may need from your local authority
- Contact your local authority to find out whether you need to pay business rates
Tax and finance basics
As mentioned above, new selfemployed engineers must register with HMRC, which means filing Form CWF1 with the tax office. This form begins the tax process and is required to alert HMRC to your business’s existence. The next step is to join the selfassessment system and make financial provision for the upcoming tax deadlines.
It is important to meet certain standards for record and book keeping. There is an excellent HMRC guide booklet that contains plenty of information in this respect (booklet SA/BK4). Keeping accurate accounts is vital because it provides evidence upon which the HM Revenue & Customs (HMRC) will decide a self-employed engineer’s tax bill. It is best to record transport, telephone, postage, office supplies, accommodation and other costs meticulously. Keeping accounts also raises awareness of running costs.
As soon as taxable supplies have exceeded £60,000 during the previous 12 months it will be necessary to join the VAT system. For cash-based businesses with taxable supplies not expected to exceed £660,000 in their next year, they may be able to reduce their administration by joining the VAT cash accounting scheme.
When employed with a company, a regular income can be predicted. For a selfemployed engineer things are much less constant. At first, it’s unlikely that income will exceed expense, because of set-up costs and initial invoices being processed by the engineer’s first customers. Gradually income patterns will emerge and earnings/outgoings forecasting becomes easier.
Cash flow is also an issue to consider. Customers taking their time to pay causes serious problems, so getting payment promptly should be a priority. Bad debts can become very costly, so it is worth seeking specific bad debt protection from a financial provider.
Self employed but supported
Energy engineers can combine the benefits of self-employment with those of being part of an organisation through association with an energy consultancy. Engineers that do this can enjoy logistical, marketing and administrative support; whilst at the same time retain their autonomy. Working in this way frees experienced engineers from admin and paperwork and allows them to concentrate on doing the areas of the job that are most satisfying.
Taking the plunge
It is often the case that many who would like to be selfemployed feel that they simply can’t afford to take the plunge and can’t cope with the initial financial uncertainty. One way an engineer can overcome this concern is to start a business on a part-time basis while still employed, as long as their current employer is aware and agrees. Then, grow it until they can risk giving up the day job.
Self-employment should be an attractive option for qualified engineers. Once established as a sole trader an engineer can work alone or under the wing of a consultancy in their field and benefit from the administrative supportive that such an arrangement brings.
Case study – Simon Thomas
Simon Thomas is a self-employed energy and environmental engineer with business-to-business energy consultancy energyTEAM.
I graduated in 1988 from the Polytechnic of the South Bank in London, with a BEng (Hons) in Environmental Engineering. Over the first years of my career I worked for a number of large building services, engineering and energy management consultancies. It was during this period that I became a Chartered Member of the Energy Institute, gaining CEng status. This was an important step in becoming self-employed.
I branched out on my own in 1996 because I wanted more control over the type of work that I was involved with, as well as when and where I worked.
After becoming self-employed I was keen to continue my professional development, as well as keep apace with relevant legislation. It was at this time that I gained my accreditation with the Carbon Trust to carry out energy reviews under the government-funded programme. I saw an advertisement in an energy magazine for freelance work with energyTEAM, based at their offices in Burgess Hill, Sussex, but working from home. At energyTEAM I specialise in energy management, utility monitoring and targeting programmes. I also advise clients on policy, tariff negotiation and utility purchasing reviews.
The advantages of working as a self employed engineer under the wing of an established consultancy are manifold. Working with energyTEAM provides a consistent and varied workload. I also enjoy a very flexible working situation that allows me to continually update my qualifications. For instance, I was awarded an MSc in Climate Change and Sustainable Development from De Montfort University in 2005. I would not have had the time to study for this qualification if I was a full-time staff engineer.
The administrative and marketing support that I get from energyTEAM is also a real help. Having dedicated staff to organise my projects and process my paperwork is a big plus. It means that I can concentrate on what interests me most and stay happy, focused and productive.
Often, one of the drawbacks of working in a self-employed capacity is a lack of feeling part of a team. Working with a consultancy can help to overcome this and provide a sense of cooperation. I would certainly recommend that self employed engineers of all kinds consider working with a consultancy.