Going freelance is a big undertaking. It requires commitment, persistence and probably a little luck to make it work.
But the first steps to becoming a freelancer are very simple.
For now, you need to notify HMRC that you’re becoming self-employed. This also applies if you are freelancing on the side (moonlighting) while you work as an employee.
There are two legal structures that you can choose from: limited company or sole trader.
Limited companies are separate legal entities, rendering you distinct from your company. Limited companies have limited liability. This means that if your business owes money, you are not liable for the debt.
The main advantage of operating as a limited company is that some clients only want to work with limited companies. Limited companies can also be more tax efficient, meaning you pass less tax and keep more of your earnings.
The main disadvantage of running a limited company is that the accounting requirements are more convoluted, meaning you’ll need to hire an accountant.
As a sole trader you can submit your own tax returns online. The main disadvantage is that if you accrue debts, you are solely responsible for them. If you want to work with larger corporations, they may be deterred by your sole trader status.
Whichever legal structure you choose, you will need to keep records of the money you earn and the money you spend.
You can use something simple like a spreadsheet.
Or you can use one of the popular accounting packages like FreeAgent or Crunch. FreeAgent and Crunch will help you send professional-looking invoices, and keep track of your income, but you’ll pay for the privilege.
If you want to keep costs down, start with spreadsheets and work your way up to a proper accounting package.
Limited companies pay corporation tax on profits.
Sole traders pay income tax on business profits.
You probably won’t need to register for VAT, at least not at the start of your career. If your sales (turnover) exceed £83,000 per year then you must register for VAT.