Becoming self-employed is a big step that shouldn’t be undertaken lightly. But it’s becoming an increasingly attractive option, with the ranks of the self-employed rising yearly.
The Office for National Statistics (ONS) has published a report showing that the number of self-employed people has risen from just 3.3 million in 2001, representing 12% of the UK labor force, to 4.8 million by 2017, representing just over 15% of the workforce.
Things to consider before going freelance
Choosing your own hours of work and deciding which projects you’d like to work on may sound like an office worker’s dream, but there are several things to bear in mind before making the leap to become a freelancer.
Remember that you probably won’t make much money in your initial months of trading, so you must reserve finances. And that doesn’t mean taking care of your rent, mortgage payments, and regular bills. You’ll also need to factor in for unexpected events, such as fixing the car or repairing your boiler.
When you’re employed, your tax and National Insurance payments are taken care of for you. But once you become self-employed, you must care for them or pay someone else.
And unlike paid employees, you won’t qualify for sickness benefits or holiday pay. So you must ensure that you have sufficient funds to tide you over when you’re not working or work is thin on the ground.
Becoming a freelancer
When you decide to go freelance, three options are available to you. You can become a sole trader, join a business partnership, or set up a limited company. The first and third options are the most popular, but deciding which is best for you is essential.
As a sole trader, you’ll oversee every aspect of your business. It’ll be down to you to take care of your cash flow, invoicing and bookkeeping. But there’s no real distinction between you and your business, so you could be in trouble if you hit any financial stumbling blocks.
That’s why many freelancers opt to form a limited company instead. This lets your business operate as a separate legal entity, protecting your finances and assets.
Keeping on the right side of IR35
HMRC takes a very dim view of contractors who use a limited company to work for a single employer without having to pay average employee rates of tax and National Insurance. If HMRC suspects contractors are paid employees operating under the tax radar, the penalties can be severe. So you need to be very clear about the stipulations of the new IR35 legislation, such as who you are working for and why you have become a freelancer.
Contractors working offshore
Many contractors form limited companies to enable them to work offshore, whether on oil or gas rigs or offshore installations, including pipe-laying vessels. If the work undertaken is in UK waters, then standard UK tax rules apply, but the situation becomes more complex when work is carried out outside UK waters.
The majority of offshore workers tend to use accountants to help them with their tax evaluations, as well as assisting with their bookkeeping. Whilst there are some associated costs unless you’re a tax expert, it’s worth it for the potential sums of money that an experienced accountant can save you.
How to find freelance opportunities
How you market and promote yourself as a freelancer will depend upon the market you’re operating in and your work. Now that the workforce is so diverse, self-employed opportunities are available across most industries, with many people making a respectable living from something that started out as a hobby.
If you’re selling a skill, such as writing, drawing or photography, it’s worth looking online for dedicated websites that connect freelancers with available jobs. Sites including PeoplePerHour, Upwork and Contently all offer various freelance jobs, although competition can be fierce.
Most regions of the UK offer networking events specifically designed to connect contractors with clients, so check your local press and websites for local options. It’s worth preparing a stack of business cards that you can distribute at these events – remember to create the right first impression that can go a long way towards inspiring confidence in prospective clients.
Insurance for freelancers
You should examine your home and contents insurance policy in great detail if you’re working from home. That’s because items you use during your work may not be covered under your usual household contents insurance policy, so you might need to take out specialist business insurance.
You might also consider other business insurance forms, such as professional indemnity coverage and public liability insurance.