You have landed that first contract, but now it is your responsibility to get paid, set yourself up as a sole trader or maybe create your limited company. Now, if like me, you were used to giving your bank account and NI details to HR and waiting for your payslip to come at the end of each month, this whole new process and responsibility can be overwhelming.
Freelancing has always appealed to me, working on projects, on my own timetable while still being around for my young family. After a 15 year career in the city, followed by 4 year break, it was time for me to craft a way back into work. I wasn't ready to go back to a big corporate career but was hoping to work in some capacity.
A chance meeting with an old friend resulted in my first freelance assignment. This was a great opportunity to get my teeth into project work and fill in the gap in my CV, but also work in a smaller structure and in a different industry. (I come from the Financial Information industry and this was a venture in the Neglected Tropical Disease field). It’s amazing how opportunities like this demonstrate how transferable skills can be (in my case marketing/communications skills).
One freelance assignment led to another and now I am a happy freelancer.
Once you get that first assignment, you have to decide if you want to become self-employed or set up a limited company. The latter is more complex, but one of its main benefit is that your business and personal finances are distinct, meaning if a claim is made against your company, you are not personally liable for it. You are also more flexible with your finances and may be able to pay less tax. You can find out here more details on setting up a limited company. If you choose this route Companies Made Simple is a great resource for forming your company.
If, like me, you decide to go down the sole trader road, the good news is that it’s actually relatively easy and quick and the paperwork that comes with it is fairly light and manageable. The process can still be daunting though.
The first thing you need to do is contact HMRC to register as self-employed. This will ensure you pay the correct Income Tax and National Insurance. It’s easy to do this online:on the HMRC website choose the option “Set up a sole trader”, you will need to create a Government Gateway account and from there follow the instructions. You can use your own name or choose a business name when you start working as a sole trader. If you decide on the latter, give it some thought (you can’t use Ltd, LLP or plc, so choose something that makes business sense and that is unique. You can check if a business name is available here). More information on how to choose a business name for a sole trader can be found here.
Once you have registered online with HMRC, it takes about 10 days for your registration to come through. And there is no rush. Although it is better to get cracking as soon as you start working (and I concede, it’s probably the most tempting thing to procrastinate), you have time to set this up until October 5 of the second tax year after you have started work (the tax year runs from April to April). You will then be able to do your tax return (another hurdle, but remember one step at the time!). Also it is worth remembering that you won’t pay tax on the first £10,600 you earn in a tax year.
Freelancing has its challenges: it is not as secure as a permanent job, it can be lonely at times, you have to be disciplined to manage your time effectively and you are responsible for declaring your income and paying taxes, but it can also be a way for you to gradually slip back into the professional sphere, take ownership of your project while still having some time to dedicate to yourself or your family.
If you are thinking about becoming a freelancer, do read this post for more ideas.
Posted by Muriel