What are the pitfalls of freelancing?
Fed up with the office grind? Fed up with having to be told to do ‘XYZ’ by a boss you can’t stand?! And fed up with telling yourself “I could do better than this”?!
Freelancing's push and pull factors...
If you answered ‘yes’ to at least one of those three, then why not think about starting out on your own as a self-employed freelancer or sole trader, assuming you’ve got a bit of legal wherewithal, writes Michael Coyle of Lawdit Solicitors.
Be in no doubt, life in the fast (solo) lane can be fun. You can choose who you work for, you can choose whom you employ, you can choose your own terms of payment, hourly rates and come and go on holiday as you please.
So sit back and watch the bank balance increase as you think – ‘How on earth did I ever work for someone else?’
What can go wrong freelancing?
And as you reach for your tipple of choice from your hammock, pose the follow-up, ‘What could possibly go wrong?’
Well unfortuantely, lots!
Indeed, the life of a freelancer, contractor or subcontractor can be full of the joys of independence but like everything in life where there is a Ying, there's a Yang! The Ying may well be the best parts of freelancing but the Yang can include loneliness, isolation, and being sued when you screw up!
Five pitfall areas of freelancing
So if you are to embark as a freelancer here are some pitfall areas to beware:
1. Legal vehicle: take care with sole trader and limited company structures
With either structure, you need to be aware of changing HMRC rules.
And while you don’t really need to form a limited company to become a freelancer, doing so could provide you with a range of benefits and protections.
In my experience, there are three main business entities that you could opt for as a freelancer: a private limited company, a public limited company or a private unlimited company.
'LTD' tends to have the edge for most
The vast majority of freelancers opt for a private limited company as such an entity will not only provide you with the right to sue under the company's name but more importantly here, will in most cases prevent you from being personally liable for the company’s debts.
If you do decide to opt to form a company as a freelancer, be aware of the HMRC rules and the upcoming changes in respect of corporation tax which are set to commence early next year. You can read the government’s stance on those details here.
Less bother = sole tradership
As an alternative, you can become a sole trader. Sole traders do not need to concern themselves with faffing around with endless paper work, deadlines for filings and the pressures of tax returns! Not having to bother with those three (which you would have to as a limited company) is great.
However, with any pros comes the cons. The pitfalls of choosing a sole tradership include but are not limited to; being an easier target to sue, being more liable for debts and having limited access to additional finance.
So it is of vital importance to weigh up what legal vehicle works best for you before embarking on your journey as a freelance. My tip? Spend some significant time seriously considering your options before taking the plunge.
2. Enlisting experts: hiring an accountant, engaging a solicitor
Not being tied to a weekly or monthly salary is one of the key benefits of being a freelancer as ultimately, the amount you can earn s limitless. You are the money-maker!
With this however comes the responsibility of managing your finances and who helps best manage such finances? An accountant.
Get help to make your freelance life less taxing
What is just as important (if not more important) than appointing an accountant? Appointing a solicitor of course!
Whether you are an individual, a sole trader or an incorporated business, having a solicitor on board to support you with all your legal requirements and enquiries will ultimately provide you with a wealth of confidence and assurance in the day-to-day decisions you take.
Furthermore, our expertise and knowledge will likely protect you against any nasty legal disputes which in the long-run, could save you a significant amount of both time and money!
3. Trade Marks: Protecting, Filing, and Combating Infringement
Often, busy freelancers can overlook trade marks as they may feel there is no real need for them.
Wrong! Having a registered trade mark is of fundamental value irrespective of whether you are an individual or big corporation.
Add value/protection to your self-employed venture
Obtaining registration for your name, brand or logo will not only add value to you as an individual or business, but it will also provide you with protection over your name and enable you to combat anyone who wishes to copy it (‘trade mark infringement’). If you find anyone infringing your mark, the power will ultimately be in your hands and you will be in a position to bring action against those who do.
While registering a trade mark is key for all businesses, it is arguably even more crucial for freelancers as they are usually at higher risk of being sued as an individual. So the more protection, the better.
4. Terms and Conditions: Are yours robust?
It is of the utmost importance for you to comply with the variety of laws and regulations that govern e-commerce.
5. Insurance: You’re covered. Right?!
There’s a reason why it’s there. So get it. Safeguard yourself against the unforeseeable and often unpredictable mishaps by getting insurance cover.
The most common type of cover for freelancers is professional indemnity insurance and there is an array of covers that you can opt for. It’s important that you take the time to really consider these and ascertain which is best for you. My tip? Keep in mind, the more costly covers are not ALWAYS the best!
Finally remember, it’s just you – so get equipped for the challenge
As a lone commercial warrior, one of the key things for you -- the freelancer -- must always be to think about protecting yourself and covering your back. As a sole-person business, you are much more likely to be an easier target in comparison to mega corporations.
Whether this protection is afforded by way of instructing a solicitor to draft a set of terms and conditions, or through the joys of HMRC-registering your own business, or getting insured, always think ‘PROTECT’ and always remember -- 'PREVENTION' is better than 'CURE.'