So, you’ve got a great idea or your own expertise to offer, but how do you stop dreaming and start doing?
Working freelance can provide flexibility, autonomy and job satisfaction that is rarely found in regular employment. As more and more businesses embrace the use of this growing workforce, it’s no wonder that over 2 million people in the UK choose to offer freelance services; a growth of 44% since 2008.
For some people, the dream of being their own boss never becomes a reality because they are afraid to take the risk and step into unfamiliar legal and financial territory.
If you can push through that feeling of being scared, that feeling of taking a risk, really amazing things can happen.”
Marissa Mayer, President and CEO of Yahoo!
There are a few important things you need to decide before getting started, but the first steps are not as daunting as you might think, and a little understanding will go a long way towards getting you started as a freelancer.
01. Choose a business structure
It’s time to bite the bullet. This is where it’s worth doing your homework to make sure you understand the regulations you will need to follow. The most common choice when going freelance is between becoming a sole trader and setting up a limited company. There are a few differences that you should bear in mind when choosing between the two.
Sole traders – You have ownership and control over your business and legally you are not separate entities, which generally means:
- Low start up costs
- Simple set up
- The freedom of being in charge!
However, it also means that personal assets could be on the line should you get sued or run into debt.
In order to get going, all you need to do is register for self-assessment with HMRC. As you start trading, you’ll need to keep records, submit an annual tax return, pay income tax and pay National Insurance.
Limited companies – Your company will have its own legal identity. This means more hoops to jump through in terms of set up, filing requirements, reporting and tax, and you may have higher running costs than those of a sole trader. The benefits of becoming a limited company are:
- Your company is legally separate from you, so your personal assets are protected if the company runs into financial difficulty. You are only risking the amount of money that you have invested in the business/your shares etc.
- It is possible to make tax savings
- You can choose to operate alone or with other shareholders, giving you more potential capital early on
- It can look more professional to be a limited company
You can find out exactly what you need to do to get started from the gov.uk website.
If you’re unsure as to which business structure is right for you, get some advice from an accountant to allow you to weigh up the pros and cons, or alternatively, you could also do some research into other businesses in your chosen field.
There is no right or wrong answer, a lot depends on your personal circumstances.
02. Make a name for yourself
Not only is naming your business one of the more enjoyable parts of going freelance, choosing your company name is important if you are registering a limited company.
Keep in mind that the name of your business will say a lot about you. Ideally, it will reflect the services you will provide and/or the values that your business will embody. If you’re in need of some inspiration, there are a number of free online business name generators to help you get started.
For a limited company, you’ll need to register your name via Companies House. If you’re a sole trader you don’t need to register your company name but you should ensure that you will stand out (for the right reasons!). Whatever your business structure, you do need to stick to certain rules, for example, the name you pick must not be offensive or infringe on existing trademarks.
It’s also worth thinking about whether or not you’re planning on creating a website, as if you are, it’s wise to secure a relevant domain name now to avoid disappointment later.
03. Bookkeeping made easy
Legally you need to keep business records, but this doesn’t have to take up all of your time and shouldn’t require a PhD! There are some great intelligent online solutions to help simplify running your business. Look for a bookkeeping platform that can easily help you to declare income, submit and track invoices and manage business expenses; saving you some headaches, time and money.
04. Get an accountant
An accountant can be a huge asset to your company. They don’t just deal with your tax returns, accountants can take the stress out of some of the legal requirements your business is under, to allow you to focus on doing what you love. Whether you do just want help with your tax return, or you are looking for a more long-term business relationship, make sure the accountant you use is officially chartered or certified.
05. Get a business bank account
If you set up a limited company you will need a business bank account. Whatever your business structure, for tax purposes alone, it makes sense to keep your company and personal finances separate. There are lots of products out there, so using a comparison website can help you to get the best deal.
06. Check VAT
You will need to consider registering for VAT if you think that your turnover may exceed £85,000 a year (as of 1st April 2017).
07. Working from home
In terms of getting your business up and running, working from home can be the cheapest option, and it doesn’t have to be forever. But before you change into your pyjamas and settle into your spot on the sofa, check if you need to pay business rates and find out what you can write-off. Business rates are taxes paid on non-residential properties like shops and factories.
Working from home can have other implications (i.e. for your mortgage), and keep in mind that having your home as your place of business can put some clients off.
08. Start doing!
So don’t just sit on your freelance dream. Take a risk, make those first steps, get some financial advice and get started!