Freelancers' Questions: Can I start freelancing on maternity leave?

Freelancer’s Question: I’m on maternity leave and quit my last job so I could concentrate on the possibility of freelancing. Fortunately, I made good contacts at my last workplace and have been approached with the offer of some freelance work. My daily rate has been accepted and I’m told there’s lots of work available.

But I only want to be doing a couple of days of work at the most at the moment, as my baby is only a few months old. To do this work, what do I need to do with invoicing, tax and NI?

Expert’s Answer: The simplest way of undertaking this work will be as a self-employed freelancer, assuming that the client you will be doing the work for are happy to contract with you on that basis. You will need to register as self-employed which you can do using a form available online from HMRC.

In answer to your other questions, you would simply raise an invoice from yourself to the client. You could consider registering for VAT but you don’t have to until your turnover exceeds the VAT threshold. Whether it is worth registering for VAT is beyond the scope of this reply, but it would be worth taking advice from an accountant.

Also consider; you will need to complete a self-assessment tax return on which you report your profits. Your tax and National Insurance is calculated on those profits. If you commence trading after 5th April, your first tax and NI payment will be due in January 2018. You will pay all of the tax and NI for that year then, plus half of that amount on account for the next year. Thereafter, you will pay tax, effectively in two instalments, January and July. An accountant can advise you on how much to set aside to cover the tax and national insurance.

Be aware, the client may insist that you operate through a limited company. If so, you will need to form a company, and open a company bank account. The company will contract with the client and it is the company that makes the profit, after paying you a salary. The company pays corporation tax on those profits (due 9 months and 1 day after the company’s year-end). Out of post-tax profits the company can be pay you a dividend. The most tax and national insurance-efficient way to pay yourself is a small salary and the rest as dividends. Typically, there would be no tax or NI due on the small salary. However, due to a piece of legislation known as ‘IR35’ you may, effectively, have to take the money from the company as salary and not dividends.

And even if this client doesn’t insist on a limited company, it might be best to create one anyway, especially if you might obtain work from other companies who may insist on a limited company. Good luck!

The expert was Graham Jenner, founder of Jenner& Co, a tax and accounting advisory specialising in freelancers and the self-employed.