‘Freelancing’ does not have a single legal definition and so, if you decide to ‘go freelance’, you’ll have to think about what kind of structure your new work will take. Please note, this information relates only to freelancing within the UK.
Doing a single piece of freelance work
If you’re not ‘going freelance’ but just taking a one-off piece of freelance work alongside a regular job (through which you’re paying tax) – you may not have to fill in self-assessment forms at all: call HMRC to let them know as soon as the work is agreed to find out.
Sole trader
This is the simplest of all self-employment structures, and likely the most popular. There’s no registered business – it’s just you registered as self-employed with HMRC and filling in self-assessment forms to record and pay your tax and NICs.
- Pros: It’s quick to set up, there are very few regulations and the finances are very straightforward – you just need to keep records of your work and technically don’t even need a separate bank account.
- Cons: If the company loses money it’s coming out of your pocket with no protection for your assets. Some clients might be reluctant to deal with sole traders.
Limited companies
This is another common structure for freelancers. You have to register a business with Companies House (incorporate), file company accounts, and comply with business rules and regulations.
- Pros: Personal assets and finances are protected: i.e. if the company loses money, you’re not bankrupt. Clients might also be happier to deal with the credibility of a limited company. Tax efficiencies.
- Cons: Taxes, National Insurance Contributions (NICs), and company regulations are your responsibility (you might hire an accountant, of course). If you’re just freelancing sporadically to supplement your main income, this is usually far too much hassle and paperwork!
Umbrella companies
Umbrella companies are effectively a way to invoice clients and avoid having to do self-employment admin. Technically you’re an employee of the umbrella. You fill in timesheets; they invoice your client, and pay you a salary based on your work.
- Pros: No hassle dealing with invoicing clients, self-assessment or company regulations, with the freedom to choose the clients you work with and the work that you do.
- Cons: It’s not the most tax-efficient system for you: the umbrella will take 1-5% of your income as their margin, and it’s hard to build your brand
If you do not plan to work alone, Partnerships and Limited Liability Partnerships are two further business structures you can consider. Go online to find out more about these structures and to research freelancing structures that are common for your niche/industry.
Working through agencies
Some freelancers deal with agencies, rather than clients. The agency will source work for you and they’ll deal with the clients for you. You still have the freedom to choose what you do and turn down jobs you’re offered, and take additional work on the side.
Self-employment with agencies
Many agencies, including many ‘Oxbridge’ orientated tutoring agencies, require you to register as self-employed (most tutors are technically ‘sole traders’ above). They typically will take a commission on the fee that you get paid from the client. After registering as a sole trader, it’s up to you to make sure you contact the HMRC and complete self-assessment forms for tax and to make your National Insurance Contributions.
Employment with agencies
Being employed by an agency for a short contract isn’t really ‘freelancing’, but rather counts as ‘temping’. There can be longer contracts too. After signing up with an agency, they can offer you work with one of their clients. You still have the right to turn them down, but if you accept the work, for that period you’re an employee of the agency and will be paid by them. You don’t need to register as self-employed and they arrange your tax and National Insurance payments to be deducted from your wages. Payment for work is normally given on a weekly basis, and is based on the hours that you have worked.
If you regularly work with agencies you should be aware of Agency Worker Regulations which are there to protect you and other staff – they give you the right to the same treatment, pay and working time as permanent staff once you’ve been with a client for more than 12 weeks.
International students, please note:
If you are an international student and you are in the UK on a student visa, then you are not allowed to set up in business or to be self-employed.
This also means that you cannot take freelance work (for example as a translator/interpreter) where you would have to invoice the company or client for the work that you do. If you get offered freelance work you should ask the company if they can offer you a contract (even if a temporary one, or a ‘zero hours’ contract, which means that they do not have to guarantee you work every week).
If you do work on a self-employed basis you will be committing an immigration offence. This could lead to a refusal of future visa applications or removal from the UK.
