Start freelancing in the United Kingdom

Representing a big part of the UK’s self-employed workforce, freelancers usually work on shorter-term projects for a variety of clients on a contract-by-contract basis. Enjoying the flexibility this status brings to them in terms of work hours and workload. Starting a freelancing career can bring immense rewards, whether you're an experienced professional or a recent graduate. The appeal of getting paid to do what you love is undeniable. However, making the transition and sustaining your passion can be challenging. To help, we've compiled a guide on how to successfully begin freelancing in the UK. Use it to turn your dream into a reality.

Where to get started

If you're just starting out as a freelancer in the UK, the first thing you'll need to do is register as self-employed with HM Revenue & Customs (HMRC). This can be done by completing a simple registration form, which can be found on the HMRC website. Once you've registered, you'll be given a Unique Taxpayer Reference (UTR) number, which you'll need to use when filing your tax returns.

Choosing a business structure is an important step in starting a freelancing career. Prior to registering with HMRC, you'll need to decide between being a sole trader or a limited company.

Sole Trader Limited Company Less paperwork personal assets won't be at risk More privacy more professional image Financial Risks more paperwork and compliance with rules and regulations

Both options have advantages and disadvantages, so it's important to research and carefully consider your decision. Relying on advice from other freelancers or business contacts in your industry can be useful, as conflicting information can be found online.

Limited Company

To start a limited company, the necessary steps include registering with Companies House, creating a memorandum of association, and paying corporation tax. Check out our article on the differences between a sole trader and a limited company if unsure.

Sole Trader

Starting as a sole trader is considered to be the simplest was and the process includes informing HMRC of self-employment, setting up a business bank account, establishing a record-keeping system for profits and expenses, checking agreements for working from home, obtaining insurance (e.g. professional indemnity, public liability), and considering pension options.

Where to declare, what, and how much

As a freelancer, you'll need to file a self-assessment tax return, which includes both your income tax and National Insurance contributions. You'll also need to file VAT returns if your turnover exceeds £85,000 per year. It's important to keep accurate records of all your income and expenses, as this will help you to determine how much you owe in taxes.

Registering with HMRC early on makes it easier for you to understand your tax responsibilities and it’s an essential step regardless of your business structure, that you can manage mostly online. Make sure to register within the deadline which is October 5th after the end of your first tax year.

When setting up as a freelancer in the UK, it is important to understand your tax obligations and to make sure you declare your income and pay the correct amount of taxes. Whether you choose to set up as a sole proprietor or a limited company, there are specific requirements and rules you need to follow.

Sole Proprietor

For sole proprietors, you will need to register with HM Revenue & Customs (HMRC) as self-employed and pay taxes through Self Assessment. You will need to declare all of your taxable income, including any money you make from freelancing, and pay Class 2 and 4 National Insurance contributions. Your profits will be subject to income tax, which you'll pay through your Self Assessment tax return.

Limited Company

If you choose to set up as a limited company, you'll need to register with Companies House and pay corporation tax on your company's profits. You'll also need to keep records of your company's finances and submit annual accounts and a Corporation Tax return to HMRC.

In both cases, it is important to keep accurate records of your income and expenses so that you can easily calculate your taxable income. This includes keeping receipts for business expenses, invoices for work performed, and records of any other business-related transactions.

When to start filing VAT

Value Added Tax (VAT) is a tax on the value added at each stage of the supply chain, from production to the final sale to the consumer. As a freelancer in the UK, you may be required to register for VAT and charge it on your sales if your annual turnover exceeds the VAT registration threshold of £85,000.

Sole Proprietor

If you set up as a sole proprietor, you will be considered a self-employed individual and will need to register for VAT if your turnover exceeds the threshold. As a self-employed individual, you will need to file VAT returns quarterly and pay the VAT due to HM Revenue & Customs (HMRC).

Limited Company

If you set up as a limited company, you will need to register for VAT in the same manner as a self-employed individual if your annual turnover exceeds the VAT registration threshold. As a limited company, you will also need to file VAT returns quarterly and pay the VAT due to HMRC.

VAT returns will require you to declare your taxable sales and purchases, and the VAT charged and reclaimable on these transactions. You can either file your VAT returns online or via post, and it is important to keep accurate records of all your sales and purchases to ensure that your VAT returns are accurate.

In addition to the standard rate of 20%, there are two other VAT rates: the reduced rate of 5% and the zero rate of 0%. It is important to understand which goods and services fall into which VAT rate categories and to apply the correct rate to your sales.

Finally, it is important to note that if you are a freelancer working in the UK but supplying goods or services to customers outside of the UK, you may be exempt from registering for VAT in the UK. This is known as “distance selling”, and you should seek professional advice to determine if this applies to you.

When to change company structure

As your business grows, you may want to consider changing the structure of your company. For example, if you started out as a Sole Proprietor, you may want to form a limited company or a partnership. This way, you would be able to have additional legal protection and tax benefits. However, we suggest consulting with a tax professional and lawyer before making any changes to your business structure.

What to write on quotes/invoices?

After you start winning clients, you’ll need to invoice them for completed work. This involves being clear on your payment terms and keeping on top of who has paid you.

When creating quotes and invoices for your clients, it's important to include your business name, your VAT number if you are VAT registered, and your contact information.

You should also include the date of the quote/invoice, a detailed description of the services or products provided, and the total amount due. If you're collecting VAT, be sure to include that amount on the invoice as well.

Additionally, it's important to keep accurate records of all quotes and invoices, as this will help you to track your income and expenses. This is because unfortunately some clients will be better at paying you than others and you might need to consider setting up a system to get paid.

More information

For more information on taxes for freelancers in the UK, be sure to check out the HM Revenue & Customs website (www.hmrc.gov.uk). HMRC has a variety of resources available for self-employed individuals, including tax forms, publications, and online tools. Additionally, the website provides information on self-assessment, VAT, and business structures. This is an essential resource that every freelancer should have on hand.

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