1) Do the groundwork.
Do your research, make sure you know who your competition are and what gap in the market there is for your services. Work out what you need to charge to earn a decent living and whether there is a market for your services that will support that. Read Freelance UK’s Starting Out guides on setting your goals and writing a business plan, however basic, so that you can benchmark your own progress.
2) Trading structures.
Essentially you have three choices. Operate as a sole trader (self employed), form a limited company or use an umbrella company. As a sole trader you're responsible for paying your own tax and National Insurance contributions, you’ll need to keep full and accurate records and are responsible for completing a personal tax return at the end of every financial year. Joining an umbrella company will mean you become a PAYE employee of the umbrella company, who will then issue invoices and collect payments on your behalf – many freelancers find this ideal if they want to test the freelancing waters. Running your own limited company is the most tax efficient way of working as you keep more of your income, but with it comes with the responsibilities of being a Director of that company. More information can be found here. If you expect to earn over approximately £10k a year you should think about forming your own limited company. Setting up a new limited company is easy to do and can be done online.
3) Register with HMRC.
Even if you freelance ‘on the side’ you should register as self employed with HMRC within three months of trading to avoid a fine. HMRC offer a “Working for Yourself” guide.
A business must register for VAT once the sales exceed £64000 (as of 1st April 2007) in a year, or else you can make a voluntary registration even before hitting this threshold. If you are dealing mostly with other VAT registered businesses then you would register to enable you to reclaim VAT on business purchases you make sure. You can also then apply to be Flat VAT registered – a simplified method for calculating VAT.
More information on the Basics of VAT here.
HMRC Introduction to VAT here
Don’t give up the ‘9-5’ if you can kick start your freelance business during the evenings and weekends until you’re sure you can make a living as a freelancer. A contingency fund is useful; on the flip side don’t believe those that say you won’t make money in your first year, as a freelancer with low overheads you can make a very healthy living. Once up and running keep on top of outstanding invoices, add your payment terms (you can ask for settlement within 14 days rather than the standard 30 days) to each invoice, perhaps offer a small discount for invoices settled within 7 days. Where you’ll need to purchase expensive materials for the project ask for a percentage up front.
6) Open a business bank account.
You’ll need to keep you business funds separate from personal finances. Freelance UK offers free bankingwith private bank Cater Allen. So long as your account remains in credit your account will remain free of charges.
7) Business Insurance.
There a few different types of protection for your business. Professional Indemnity Insurance is designed to meet the cost of defending claims made against you, including damages that may become payable, e.g. where a client suffers a financial loss as a result of alleged mistakes or omissions on your part (bad advice, loss of data/documents etc). Business Liability insurance will cover you if you accidentally cause loss or damage to someone else's property while on site (e.g. at your client’s office you spill coffee over a PC). Legal Expenses/Tax investigation insurance will defend you against any tax investigation - including those on IR35, S660A & PAYE audit - by HMRC. More information here.
8) Legal considerations.
Protect your company with your terms and conditions of business, contract templates and know your copyright law (both protecting work you create and infringing on others’). Comply with the Data Protection Act where you hold details on a database. Companies Act 2006 now requires that all companies list their place of registration, registered number and registered office address on all their e-documents, business forms and websites. Also research general trading laws to see which apply to you, such as Trade Descriptions Act 1972, Sale of Goods Act 1979, Supply of Goods and Services Act 1982 ensuring that you don’t make misleading claims about the services you offer and that goods, that the services you offer match the promises you make and that you undertake work with reasonable care and skill.
More information here: Business Link’s "Selling and the Law".
You will need to be a red hot at selling yourself by default. Add yourself to online directories such as Freelance UK’s , get some business cards printed and hand them out to everyone you know, use local networks to further spread the word and call every single potential client you can think of. Dedicate regular time to marketing your business both in the early days and when you’re established. If you’re not a designer then barter with other freelancers on our forum, to reduce your costs by offering your skills in return. We’ll be launching a new service shortly that will broaden your horizons further, so keep checking back!
Family support is vital as you’ll need their understanding that the money may be irregular, the hours may be long, but ultimately you’ll be doing what you enjoy best and the resulting fruits will be lining your pockets only.
Ten tips for starting up your freelance company
1) Do the groundwork.