With COVID firmly upon us, and job opportunities few and far between, there’s no better time to set up as a freelancer. It’s likely that as companies can’t afford to pay for full-time staff they will resort to freelancers as and when they need the expertise, and you need to make sure that you are at the top of their list. But how do you set up as a freelancer?
Are you going to be a Sole Trader or Limited Company?
A sole trader is a self-employed person who is the sole owner of their business and it's the simplest business structure available. A limited company is a type of business structure that has its own legal identity, separate from its owners (shareholders) and its managers (directors). This remains the case even if it’s run by just one person, acting as shareholder and director.
The advantage of being a sole trader is that it is easy to set up and there is relatively little paperwork beyond the annual self-assessment tax return. They also have more privacy as their details cannot be found online via Companies House. However, sole traders have unlimited liability, as they’re not viewed as a separate entity by UK law. This means that if the business gets into debt, the business owner is personally liable. As such, sole traders could lose personal assets if things go wrong.
A limited company does have the benefit of limited liability, as incorporation forms a legal distinction between the business owner and their business. This means that your personal assets aren’t exposed and if anything goes wrong you’ll only lose what you’ve put into the business. Furthermore, they are generally more tax efficient as they pay Corporation Tax on their profits rather than Income Tax. However, setting up as a limited company requires more responsibilities, such as filing yearly annual returns and annual accounts.
Set up a Website
What are you going to be called and how are you going to brand yourself? Are you going to choose something where you can grow, and potentially pivot or take on staff? Or is your name going to be your brand?
Once you’ve decided on what you are going to be called, you need to buy your domain name so that people can find your business and contact you, while you can market to them. You’ll want to use your website as your portfolio, so that when potential clients see you they know what you do and are excited by what you can offer.
How much are you going to charge?
Setting up as a freelancer also means thinking about who your clients are going to be. Are you going to target a specific industry, individuals or business size? Knowing who your preferable clients are means that you can tailor the content of your website accordingly and price your services accordingly as well.
How are you going to find clients?
There are a number of ways that freelancers find clients. You might already have relationships with people or companies that you have previously worked with, but may need to find more if you are going to have enough money coming in every month.
Websites such as Upwork, freelancer.com, Guru and People Per Hour offer freelancers the ability to show off their services to other individuals and companies who need it. All these freelance websites run slightly differently and have different levels of success, so do your research before you embark on one. Furthermore, some are all-purpose, while others are specialised, and some don’t let everyone join offering a screening process and test projects to see whether you are up to scratch.
In the same way, you could contact recruitment agencies that deal with freelancers in your area. Once again, they may be all-purpose or specialist, and work with certain clients that require certain levels of attainment and experience.
Register for Tax with HMRC
Once you’ve decided to go self-employer you have to let the government know by registering with HMRC as self-employed.
As a sole trader, you’ll submit a tax return once a year and you’ll pay tax and National Insurance twice a year, in January and July. You’ll need to keep a careful record of everything you earn, as well as keeping track of what you spend on your business, and you’re required to keep these records for at least five years from 31 January of each tax year. You can offset your business expenses against the tax you pay, so keep all the receipts for your start-up and running expenses, such as a laptop, office furniture and printer paper.
As a limited company you’ll be required to submit a company tax return once a year and pay corporation tax on any profits you’ve made. Depending on your set up, you may also need to register for VAT and submit quarterly returns. You’ll also have to set up self-assessment so that you pay income tax and National Insurance. As above, you’ll have to keep your records for at least five years from 31 January of each tax year. You can also offset your business expenses against the tax you pay, so remember to keep all your receipts.
Take out Insurance
Often forgotten, professional indemnity insurance is highly recommended, although you don’t legally need it. It’s there to help you if you’re ever sued by a client for giving advice, or being in any way negligent, resulting in loss or damage to the client’s business.
Set up Accounting Software
The easiest way to keep on top of your business is to use external accounting software. You’ll be able to create professional-looking invoices, track and chase payments, and keep records of all your income and expenses in one place.
If you are unsure about the process, you could also use an accountant to fill in your tax return. They’ll know the system better than you, so it will be a quick job, while they will also know how to complete it properly, saving you the annoyance of accidentally paying more tax than you need to or the hassle of having to resolve a fine.