TL;DR: Ever wondered what it takes to become a freelancer? We’ve compiled a complete list of everything you need to know and consider before going at it alone, including tax, benefits, sourcing your first gigs, securing clients and much, much more. It’s a foolproof guide for how to get into freelancing. So let’s get started.

Below is everything you need to know about becoming a self-employed worker.

 Table of contents

  1. What is a freelancer 
  2. Pros and cons of freelancing 
  3. Sole trader or limited company 
  4. Tax
  5. Deciding on your fees 
  6. Getting paid 
  7. Making the jump

Freelancing for beginners 

We’ve all thought about it from time to time: “What would it be like to become a freelancer?” To manage your own time, to have no boss. To do the work that you choose. Sounds amazing, right? 

The world and work of a freelancer are growing. In fact. by the fourth quarter (Oct to Dec) of 2019, there were more than 5 million self-employed people in the UK, up from 3.2 million in 2000. That’s a 56% increase in only two decades.

Of course, there are loads of benefits to becoming a freelancer (we discuss plenty of them below), but before you plunge into the glorious waters of gig work, it’s important to have a balanced view of what being a freelancer really entails. Yes, it’s great, but you also suddenly have to now consider paying your own taxes, invoicing companies and much much more. Understanding the specifics of what it really takes to be a successful freelancer will ensure you aren’t entering this brave new world blind and can help you become better equipped to expect the unexpected. 

What is a freelancer? 

There’s no place like Wikipedia. According to them, a freelancer is “a person who is self-employed and not necessarily committed to a particular employer long-term. Freelance workers are sometimes represented by a company or a temporary agency that resells freelance labor to clients; others work independently or use professional associations or websites to get work.” 

They can also commonly be referred to as contractors or gig workers. Whatever you decide to call yourself, the primary takeaway here is that a freelancer is not bound to a specific employer. In many cases, freelancers are self-employed or have limited companies set up (more on this later), meaning they are able to work with multiple clients concurrently, on projects which they choose. 

Although these are commonly short-term engagements, sometimes freelancers can be retained onto longer projects with their customers too. This is less common than shorter project work, but definitely happens in some industries. 

Part-time side hustle 

There are plenty of talented individuals dipping their toe into the world of gig work whilst still being employed full-time. Some don’t want to work full time to, for example, fit their work around family life. Perhaps they have a new skill or hobby they want to hone, or indeed to test the market for viability, should they decide to go fully blown freelance. Those freelancers who are working a side hustle will be constantly juggling between their permanent work and the needs of their clients, so it’s certainly not for the faint of heart.

Also, word to the wise. Always check your employment contract before you decide on this route; some are less than happy with you working on other projects outside of your obligations with them. Better safe than sorry.

Pros and cons of freelancing 

As we said earlier, freelancing really is a compelling combination of pros and cons. Whether you see some of these as benefits or risks will really depend on who you are, your needs, your lifestyle and even how risk averse you are. Whichever way you look at it, below are some of the key perks and downsides of going at it alone. 

Benefits of freelancing 

  1. Flexibility 

Want to start work at 10am? Don’t fancy working this Friday? Got to pick the kids up from school? Lucky for you, you’re your own boss. And that means that you can manage your own work diary like the grown up adult you are. No boss micromanaging you, no regimented 9-5. Letting your work fit around your life, and giving you a better work/life balance is one of the biggest benefits of freelancing. 

  1. Control and choice 

When it comes to working with customers, you get to choose your own clients as a freelancer. This means that not only can you select projects which interest or challenge you, but also clients who are aligned with your own values and ways of working. This tends to create more synergy when collaborating, which can only lead to happier clients.

  1. Can be very lucrative

It’s not a secret that freelancers have the potential to make a lot more money than their in-house counterparts. That’s because they can charge on an hourly, daily or even project basis. Combined with the right reputation, experience and portfolio, there’s a lot of opportunity to make a very decent living.  

Downsides of freelancing

  1. Unstable income 

One the most important aspects to consider when debating a shift to freelancing is your source of income. Because you are having to generate your own business and clients, it means that you must be comfortable with a certain level of uncertainty. It just comes with the territory and plenty will talk about the ‘feast and famine’ of freelancing. Allay this by always having a cash buffer to take the pressure off and work hard to get recurring revenue where possible.

  1. Riding solo 

Working for yourself is great, except for those times when you realise that you’re, well, working BY yourself too. Even if you regularly interact with your clients, there will be plenty of time spent alone, so if you’re someone who likes regular social interaction explore coworking spaces, networking groups and more to ensure you don’t isolate yourself whilst working alone at home. 

  1. Relies on your own self-discipline

If you’re a self-starter who needs no external influence to motivate you, then you’re already well suited to gig work. However, if you need to be extricated from your bed at 8:59AM every morning, freelancing might not be for you. The reality is that you are completely culpable for your business and your success, so the more you put in the more you get out. Being disciplined is critical for contractors.

Sole trader or limited company 

When you finally decide to start working as a freelancer, you may think that’s the biggest decision you have to make. However there are a few other things you will have to consider, and one of those is whether to establish yourself as a sole trader or a limited company. But before you can decide, what’s the difference between a sole trader and a limited company? 

Sole trader 

Being a sole trader is undoubtedly the simplest way to run a business. As a sole trader you aren’t required to pay any registration fees with Companies House, but you must still register as self-employed.

Although being a sole trader avoids all the hassle of registering with Companies House and presenting annual accounts, one downside is that your personal assets are not distinguishable from your business assets. In short, you and your personal possessions are up for grabs if things go wrong. 

N.B. Within three months of becoming self-employed you must inform HMRC so they can ensure you are paying National Insurance contributions and ensure you complete self-assessment forms on time.

Limited company 

In contrast to becoming a sole trader, a limited company ensures separation from company directors and shareholders to that of the business. This means that the business has a legal identity of its own and therefore the business directors/owners aren’t personally or directly culpable for debts or liabilities of the business. Essentially, they have limited liability.

Do consider the fact that if you set up a limited company, you must register your business through Companies House (it’ll put you back twelve British pounds too). When doing that, you will need to provide at least 3 pieces of personal information about yourself and your shareholders such as town of birth, passport number, or NI number.

You also have to pay corporation tax, file information annually with Companies House and more.

Getting to grips with tax 

Much like you would pay tax if you were a full-time employee, whether you are a sole trader or a limited company, you and your business are still liable to pay for tax. The differing factors lay with how this tax is paid. 

Tax for limited companies 

It’s important to consider the fact that your business will be liable for corporation tax, which is currently 19% of all profits if your business is based in the UK. Tax returns must be completed and filed annually in line with your financial year. 

Many people can be enticed at the prospect of only paying 19% tax on the money they earn, however that is not how this works. Because you are a limited company, this is money the business has made, not you. So in order to get access to your cold, hard cash you’ll have to consider how you’ll pay yourself. 

Some opt to pay themselves a small salary and then take the remaining desired amount as dividends. Others choose to pay themselves a full wage. Both options have their pros and cons and it’s worth exploring what’s important to you at this stage. 

If you do opt for the former, or have any other sources of income you will also have to complete a self-assessment annually to declare your income.

And one final thing: if your business starts turning over £85,000 per year or more, you must also get your organisation VAT registered

Tax for sole traders 

A sole trader must pay tax on their business profits (minus expenses) and are also liable for Class 2 and 4 National Insurance. Tax for sole traders operates in a very similar framework to that of a full-time employee. 

Current income tax rates for sole traders for the 20/21 year are: 

  • Personal allowance: the first £12,500 is tax-free (woo!)
  • Basic rate tax: £1-£37,500 (after taking off personal allowance) = 20% tax
  • Higher rate tax: taxable income over £37,500 = 40% tax
  • Additional rate tax: taxable income over £150,000 = 45% tax

Much like your personal earnings through a limited company, this income and tax must be declared via a self-assessment annually.

Suffice it to say, there’s no escaping the tax man. So if you’re thinking this all sounds quite complicated, you’re right, it can be. A good accountant can be worth every single penny if you start to feel your finances are becoming a distraction, so don’t ignore these experts to help give you peace of mind. 

Deciding on your fees

Probably one of the most difficult areas for freelancers when they just start out: “How much should I charge my clients?” It’s a great question with no simple or direct answer, however we do have some ways in which you can start to discern what’s right. 

Many freelancers don’t always charge the same hourly, daily or project rate to each client, so when considering what to charge, consider the following questions: 

  • Are my skills and expertise currently in demand? 
  • Are there many people with my skills and experience currently available on the freelancer market? 
  • How much are other freelancers like me charging? 
  • What is the nature of the work? For example, if a client is looking to work with you for a prolonged period of time, could your rate be reduced? 
  • Do you want to work with this client? 
  • How much can this organisation realistically afford? 

When working out what to charge, take into account all of the factors above and work out what you’re comfortable with. Ultimately, it’s up to you.

Different types of projects

As we briefly mentioned above, there are a variety of ways that freelancers tend to work with clients: 

  • Completion of work, chargeable on an hourly basis
  • Commitment of your time on a per-day basis
  • Completion of work, chargeable on a daily basis 
  • Completion of deliverables on a per project basis 

Depending on the nature of your work, existing project commitments and personal preferences, you may want to offer all or only some of the above engagement methods with clients. 

However, in our experience some of the more profitable ways to work are through projects because clients are focused specifically on outcomes as opposed to time spent on specific tasks. This means that if you are productive or work efficiently, you can spend less time on these projects but still make good money on the project. 

Ultimately, it’s entirely up to you. That’s the beauty of contract work! 

These days, you can’t just ping over emails to clients requesting the amount of money owed. Your clients will also have their own taxes to pay, and therefore they are going to require an invoice from you before they can pay you. 

Whilst you can absolutely create these yourself manually, why bother when there are plenty of free invoicing and accounting tools out there? This will also make your tax returns easier later, we promise.

Some great software which offers free versions include: 

  • Zipbooks – Getting paid has never been simpler 
  • Wave – Create professional invoices for free
  • Zoho Invoice – Zoho Invoice is online invoicing software that helps you craft professional invoices, automatically send payment reminders, and get paid faster online.

Getting paid in different ways

Most businesses will just simply request a straightforward bank transfer in order to receive funds owed, but these days many customers will also ask if they are able to pay via credit or debit card. If you want to get paid more quickly, sometimes this can be a great option to offer clients through the likes of Stripe or PayPal. Just bear in mind that something like Stripe will also take a cut of your profits (at the moment, 1.4% for European cards and 2.9% for non-European cards), so consider whether it’s really worth it.  

Remember: if you are invoicing international clients, there are a few things you need to bear in mind: 

  1. If you are VAT registered, only companies in the UK will need to have tax added 
  2. Remember to include your IBAN number (usually easily found in your banking details), as this is needed for international transfers and typically also incurs a fee

Making the jump to becoming a freelancer 

Of course, being prepared and knowing what you need to consider before becoming a freelancer is only one part of the puzzle. Actually taking the leap into the unknown can be quite daunting, we know this. 

We’ve helped guide many people through their freelancer journeys and here are our top three tips to make the move more comfortable. 

  1. Make sure you have some savings 

To make sure you are able to choose the right clients and not be scrabbling for work, we recommend you have at least enough savings to cover your outgoings for at least three months. This will remove a lot of anxiety around going freelance because you can give yourself time to build up your business.

  1. Start it as a side hustle 

If you’re particularly risk-averse, starting as a side hustle can be a really effective way for you to test the water and work out a lot of teething issues without the full-blown commitment of being freelance. You can have a few clients which can give you recommendations whilst you get a better understanding of where demand for your skills lies. 

  1. Work with partners  

Starting out as a gig worker can be challenging, so sometimes using online platforms or trusted partners to help connect you with clients can be a much more comfortable route, especially when you’re just starting out. You can just focus on doing really incredible work, they’ll do all the leg work getting payment and corresponding with the client. 

So that’s it. Everything you need to know and consider to get yourself started as a freelancer. Thinking about it? Why not sign up to our platform and our team will help you understand your skill sets and what it takes to go freelance. We’d love to help you take the next step in your career.