Stepping into the freelance world for the first time can be daunting – even when you think you’ve got everything covered, how can you be sure? And even if you’re a fully-fledged freelancer, are you doing everything correctly? Here’s a taster from our new guide to freelancing to get you on track.
There are many different ways of working as an independent professional, and each has its own challenges and risks. But the key thing to remember when you start working for yourself is that you are running a business, even if it’s just you and you alone.
The first thing to decide is how you will refer to yourself. This might depend on the sector you work in, but often it’s just about personal preference. Independent workers can go by: freelancer, contractor, consultant, independent professional, interim, self-employed and business owner.
Now you understand what it means to be an independent professional, it’s time to get going. There are nine basic steps to get started.
1. Understand employment status
This is important because it determines not only how you set up your business, but also whether you are treated as ‘employed’ or ‘self-employed’ for tax purposes.
In theory, it should be simple: if you work for yourself, you’re self-employed. Unfortunately, in practice it’s a little more complicated, and HMRC will use the specific details of your engagements to decide your status.
2. Decide on a trading structure
Before you start getting work, you need to establish a trading structure and let the taxman know what you’re doing.
There are five main structures you can use:
- Limited company – you are employed by your own company
- Sole trader – you are self-employed
- Partnership – you are self-employed, but there are others in the business too
- Limited Liability Partnership – you are self-employed along with others, but have limited liabilities
- Umbrella company – you are employed by another company
3. Source an accountant
Although it’s possible to do your own accounts, it’s often a good idea to get yourself an accountant.
Not only will they save you a lot of time and hassle; they can also give you legal ways to help save on your taxes. And it will show the authorities you’re taking steps to comply with the tax rules.
4. Register for VAT
Technically, you don’t have to register for VAT until you reach the threshold for that tax year. The current amount is £85,000 for 2017/18.
However, it can help to register for VAT before you reach that, as this will allow you to claim back VAT on goods and services for your business. So if you spend a lot on VAT-added goods and services, this could be a big saving.
5. Set up a cloud based book-keeping system
By law, you have to keep a comprehensive record of all business-related paperwork, including receipts, invoices, bank statements, paying-in slips, business diaries, mileage logs and minutes from board meetings.
Update your records continuously, and keep paperwork for at least seven years. You’ll also need to keep certain documents – like title deeds – for 12 years.
6. Get a business bank account
No matter what trading structure you choose and what sector you’re in, if you’re working for yourself, you need a business bank account. That’s because it’s vital you keep your business and personal finances separate: mixing up the two can lead to confusion – particularly when it comes to tax.
7. Get connected
Get yourself a work phone and email, and don’t use your personal ones. Not only will you be able to claim your work phone against tax, it will also give you a better work/life balance and a more professional image.
8. Create a professional workspace
Make sure you draw a clear line between your workspace and your living space – especially if you’re working from home. Otherwise you’ll find it difficult to maintain a healthy work/life balance.
One way to draw this line is by getting yourself a room or study area with a proper desk and chair. You might also want to consider co-working spaces.
Creating a business plan will help focus your mind on your goals. It will also be important when you’re pitching to clients.
When you’ve got the basics sorted, it’s time to land your first gig. Start by doing market research and identifying your niche. This will be particularly important when you start talking to potential clients.
Use social media and networking events to find potential clients, and make sure you have a good portfolio, CV and a strong business brand to win work from them. And if you want to get started quickly, recruitment agencies are a good option too.
Once you have found your client, seal the deal in writing before you do any work – that way you can be sure of getting paid on time. Use a contract for this, and make sure it clearly sets out your employment status.
Next is delivering the project. Maintain a good working relationship with your client by setting clear goals and having regular reviews. And when it comes to actually getting paid, you don’t have to invoice the client right at the end: you could use a 14-day term or even have them pay 50 per cent upfront.
With a few projects under your belt, you may feel like you are in the swing of it all and know how it works. This is a good time to take a step back and look at what you can tweak to help manage your clients and get ahead in your career.
Even when you’re just starting out, you need a clear exit strategy ready. Most likely this won’t involve selling your company: instead, you’ll probably just have to call HMRC, tell them you’re no longer trading and pay up your taxes.
If you have a limited company, however, and there are funds in the business, you’ll need to decide how to take them out. You can remove them as:
- A company pension contribution
For the full guide, click here