Becoming a freelancer is a huge step for many people in specialist or creative industries, but also one that is filled with rewards both financially and in terms of being able to dictate your work days, as long as the work gets done within the timeframes agreed by you and your client.
It gives you the opportunity to work on many different projects and people who have the discipline for it can make a lot of money whilst still working around the rest of their life.
One aspect of working as a freelancer that can be confusing when starting out is ensuring you are keeping adequate records and paying the correct amount of tax that you owe.
Depending on the complexity of your business, filing your income tax can be somewhat complex, but here is a simple, step-by-step guide to getting started. If you are unsure at any point or your business has more complex tax considerations, consult a tax accountant if you are at all confused or concerned.
Step One: Meeting The Guidelines For Self Assessment
If you are working as a freelancer on a very occasional basis or run a small-scale cottage industry, you do not necessarily have to set yourself up for self-assessment, although as a general rule if you are serious about freelancing or would ever consider scaling up, it is best to set it up sooner rather than later.
Officially, you must register for self-assessment if you have earned more than £1000 from self-employment work in the last financial year (6th April to 5th April), or are part of a business partnership, so as soon as you feel that might be the case for your work.
Step Two: Decide Your Structure
The first and biggest step will be deciding which business structure you will set yourself up as, and whilst there are a few potential options, the two most common for a freelancer working on their own are to set up as a sole trader or as a limited company of which you are the registered owner.
Both of them have their advantages and disadvantages and both are effective structures for the right kinds of business.
Registering as a sole trader typically means less paperwork and taxes can be done through self-assessment, although do bear in mind that you still need to retain these records and keep track of invoices and expenses. It also means that you are personally liable for debt and financial risk.
This makes it ideal for a lot of freelancers where there are no or very limited business expenses and overheads.
Registering as a limited company can be an effective alternative, as they look more professional, are easier to scale up if a business starts to take off, allow you to employ staff and will not risk personal assets if the business ends up in debt.
There is, however a lot more paperwork, and a limited company will need to register with Companies House, alongside completing a company tax return alongside a Self Assessment.