Starting A Freelance Business - A Guide For Beginners

Starting a freelance business could be attractive for those with creative talent, consultancy, or project management expertise. Freelancing allows you to work when you like and only take on the work you want. It can also provide a flexible income that fits your lifestyle.

In this guide, we will cover some key steps you will need to take when learning how to go freelance, including what niche you will work in, how to make a profit, and, more importantly, how to set your business up for success.

Is Starting A Freelance Business A Good Idea?

According to Statista, there were 4.39 million self-employed workers in the United Kingdom in 2023, and they predict this number will rise significantly.

However, there are various risks and benefits to consider when deciding if freelancing is for you. These include:

• Flexibility – The ability to take on work only when you can (or want to) is highly beneficial for those who suffer from conditions that fluctuate in severity, such as long-term COVID-19, ME, fibromyalgia and more. This also works for busy parents, carers, and other lifestyle types that require flexibility.
• Earn what you want—As a freelancer, you can set your prices. However, these will be restricted by how much people are willing to pay for your services. You can work the hours that you want, so if you have an expensive event coming up, you could take on more work and then drop down as your financial needs change.
• Diverse opportunities—If you become part of a freelance community, you may be able to connect with other freelancers to offer services as a package. This could help you diversify your client base.
• Isolation—One problem that some freelancers experience is isolation. If you are fully working from home and have little opportunity to socialise outside working hours, you may find yourself becoming lonely. However, there are lots of freelance cafés, and you can even rent an office desk if you would rather be around other people.
• Fluctuating income – the downside of freelancing is that your income is never guaranteed. There may be periods when work is in short supply, and you may worry about your financial future. Putting away money when times are good is a wise idea, as this will see you through the peaks and troughs.

Hopefully, after considering the risks and benefits of starting a freelance business, you will decide to give it a go. If so, there are specific ways to help yourself by starting your business on a solid legal footing.

Different Types of Freelance Careers

Depending on your qualifications and skill set, various options are open to you. Examples of careers that can lead to you starting a freelance business include:

• Creative industries—The freelance market has various creatives operating within it. Some popular choices are writing, graphic design, and web development services.
• Consultancy – If you have succeeded with your career so far, you may move into consultancy by starting a freelance business. That way, you can help clients using your already-honed skills.
• Marketing—If you are adept at marketing but have always worked for other companies, now could be the time to start out on your own. You may be able to use some of the contacts you have made, or you could learn new skills that allow you to move into social media marketing, for example.
• Translation/language services—You may be able to offer translation services to international clients. After all, some translation apps can be particularly unhelpful when it comes to complex terms and conditions. This is a niche market, and freelancers can do well here.

Step 1 - Planning Your Business Journey

The first step in going freelance is to make a business plan for success. After all, a solid business plan gives you something to refer back to and allows you to structure your business in a way primed for success. Your business plan should include:

• Executive summary – This should clearly define your business and the services you offer.
• Competitor and market analysis—You should research what your customer base is looking for and how you can deliver on this. It would help if you also looked at exceptionally well-performing competitors in the market to see how their services compare to yours.
• Costings: Make sure to include all overheads and consumables, such as printer paper or batteries for a dictaphone.
• Decide on your services and pricing—Once you have done your market analysis and costs, you will be in a good position to set your prices for the services that you want to deliver.
• Plan your marketing – A marketing plan is vital as it gives you something to refer back to and tweak to ensure your campaigns hit their mark.

Step 2 - Freelancer Business Structure: How To Set Up As a Freelancer UK

Before marketing yourself as a freelancer, consider starting your freelance business properly.

Choose Your Legal Structure - One decision you may have to make right away is related to the legal structure of your business. Most freelancers start as sole traders. However, some prefer partnerships or register as limited companies. This is the main difference between the two legal structures:

• Sole Trader: You and your business are considered one legal entity. Your personal finances and business assets/debts are not separated.
• Limited Company: The company is a separate legal entity from its owners (shareholders) and directors. This limits your personal liability if the company faces financial difficulties.

Taxation considerations:

• Sole Trader: You report business profits on your Self-assessment tax return and pay income tax on them. National Insurance contributions also apply.
• Limited Company: The company pays Corporation Tax on its profits. Shareholders can then take out dividends or a salary, which are taxed differently.

Administration considerations:

• Sole Trader: There is less administrative burden. You keep basic accounting records and file a Self-Assessment tax return annually.
• Limited Company: More complex administration. You must comply with stricter accounting regulations, file company accounts with Companies House and appoint a company secretary.

Other Considerations:

• Raising Capital: Limited companies can attract investment more easily by issuing shares.
• Credibility: A limited company structure may give clients and partners a more professional image.
• Decision-Making: Sole traders have complete control over the business. Limited companies have a board of directors who make key decisions.

The best option for you depends on your specific circumstances. A sole trader structure is suitable for new businesses with low turnover, where you want simple operations and keep most of the profits. Forming a limited company is ideal for businesses with higher risks, aiming for growth, or seeking external investment. It offers greater protection for your personal assets.

Let the professionals at Your Company Formations guide you through the intricacies of this decision, ensuring a smooth and compliant business setup. Our expertise will help you navigate the legal requirements and establish a solid foundation for your freelance business.

Step 3 - Fulfil Your Tax Obligations

As a freelancer, it is mandatory to register with HM Revenue and Customs (HMRC) for Self Assessment. This crucial step ensures you meet your tax obligations and avoid penalties. During registration, you will provide details about your freelance income and business expenses, enabling HMRC to calculate your taxes accurately.

To navigate tax calculations, record-keeping, and ongoing financial management, consider one of the following approaches:

• Partner with an Accountant: An accountant's expertise can streamline tax preparation, ensure compliance, and identify deductions you may miss. They offer invaluable guidance as your freelance career evolves.
• Implement a Robust Accounting System: Several cloud-based accounting software solutions cater to freelancers and small businesses. Look for systems that easily track income, expenses, invoicing, and tax reporting features.

Additional Considerations:

• Registration Deadline: Register with HMRC by the 5th of October following the tax year you started freelancing.
• National Insurance: Be aware of your National Insurance contributions and payment deadlines as a self-employed individual.

Our team at Your Company Formations is often asked about registering for VAT. You can register for VAT even if your turnover is below the current VAT threshold. You can find out more in our post: Do I Need to Register My Company for VAT?

Step 4 - Insurance and Legal Obligations

Your expertise is your livelihood when you are a freelancer providing services or advice. However, mistakes, accidents, and unforeseen events happen. Insurance provides a safety net for these scenarios:

• Professional Indemnity Insurance: Protects you against financial losses if a client claims your advice or services caused them harm (monetary or otherwise). This is crucial if errors in your work could have serious consequences for your clients.
• Public Liability Insurance: This covers you against claims for injury or property damage that a member of the public or a client might suffer as a result of your business activities.
• Cyber Liability Insurance (increasingly important): Protects against the costs associated with data breaches, hacks, and other cyber security incidents that could compromise sensitive client information.

It will help to consult with an insurance broker who understands the risks specific to your freelance field and can recommend tailored insurance packages to meet your needs. You can also learn more about essential insurance for business in our post, Employer Liability Insurance - A Legal Requirement Protecting Your Employees and Yourself.

Understanding Your Legal Obligations

Data protection and client confidentiality are essential pillars of professionalism and respect for your clients:

• Data Protection (GDPR): The UK's General Data Protection Regulation (GDPR) sets strict rules on collecting, storing, and using personal data from clients. You must have practices to ensure compliance, such as a clear privacy policy and secure data handling procedures. The Information Commissioner's Office (ICO) website (https://ico.org.uk/) has extensive resources for understanding and complying with GDPR.
• Client Confidentiality: You might handle sensitive client information depending on your profession. It is your ethical and often legal duty to safeguard this information and not disclose it without explicit consent.

Investing in appropriate insurance and understanding your legal responsibilities demonstrates your professionalism to clients, builds trust, and protects you and your growing freelance business.

Step 5 - Launch Your Business

Once you have everything set up and planned, it is time to start your freelancing business. There may, however, be some other considerations along the way that may be worth making, such as:

• What will you do if your growth surpasses expectations?
• How will you keep your interest fresh in the industry you are operating in?

Considering these questions when planning your business will give you the best route to success. If you need assistance registering your company name or have questions about starting a freelancing business on the right foot, our team at Your Company Formations can help.