Going it alone: how to make it as a freelancer
Going it alone: how to make it as a freelancer
There are approximately 4.3 million freelance workers in the UK, with the self-employed sector contributing an impressive, estimated figure of £316bn to the UK economy per year.
But a report by The Association of Independent Professionals and the Self-Employed (IPSE) shows that the number of freelancers is dropping. Figures for 2021 are down 5% from 4.3 million in 2020, dropping for a second consecutive year, after a decade of steady increase.
The pandemic, Brexit, and confusing new tax legislation have played their role in the shrinking sector, according to Derek Cribb, CEO of IPSE.
Nevertheless, working from home comes with perks that you can’t get on the payroll.
Not only can you create your own schedules, but you can often choose your assignments instead of being at the beck and call of a demanding boss.
Still, it’s not something to jump into lightly. Before you give up your day job you must ask yourself not just whether a freelancing career is right for you but whether you’re right for freelancing.
Here’s how you can get started:
What is freelance work and how can you make it work?
The thought of not having a regular wage, benefits, or company pension contributions can make most people panic, but it doesn’t have to be scary. For many, the benefits of freelance life massively outweigh the cons.
Freelance workers operate in all areas of working life, from writers and designers to hairdressers and chefs. What makes them freelance is not only their ability to choose when and how they work (hello morning lie-ins), but also the fact they usually pay tax at the end of the year – it’s not taken from their wages before getting paid.
Online groups can be a great place to talk to fellow freelancers about everything from what price to charge to how to chase a late payment
The benefits of this lifestyle are not to be sniffed at. Reasons why someone might jump ship and go freelance include a better work-life balance, and the freedom to work when you want, where you want, and for whom. You might want a job that fits in with family commitments. You could also potentially earn more money.
On the other hand, it’s worth remembering you won’t get a regular wage, there’s little job security, you’ll have to sort your own taxes out, and there’s no sick pay, pension, or maternity or paternity benefits. You may also not be able to work in an office, or with a team of others, so it can be lonely.
Starting out as your own boss
To start with it’s worth weighing up all the pros and cons to decide if freelancing is right for you. For example, if you get a good set of benefits in your current job, would you miss these if you quit? Could you fund them (if you needed to) from your wages?
If you decide to make the leap, contacts are key. Shouting about the fact you’re going freelance before you’ve actually done it means more people will know you’re available and look to hire you if they need someone.
It’s also a good idea to have some savings behind you before you jump.
Networks such as LinkedIn, Twitter, and Facebook play a part here in linking you up with potential jobs and employers. Online groups can also be a great place to talk to fellow freelancers about everything from what price to charge to how to chase a late payment.
It’s also a good idea to have some savings behind you before you jump. When you start you may not be paid straight away. Having a pot set aside to cover your regular monthly outgoings is a good idea.
If you can stick it in a separate savings account, this can provide a good buffer if there’s a gap between securing your first job and getting paid. This can be helpful down the line if you’re ever short of work and need to pay out for other financial commitments, such as childcare costs or a mortgage.
Tax is taxing but it doesn’t have to be
Tax is another issue. You need to let HM Revenue & Customs (HMRC) know that you’re going it alone and then pay tax on anything you earn above your personal tax allowance. There’s also a range of business expenses you won’t need to pay tax on, such as travel or clothes used for your work.
The most common way to do this is to be either a “sole trader” or a “limited company”.
You can register as a sole trader and for self-assessment on the gov.uk website. Then you’ll need to file your tax form online (or by the end of October if filing a paper copy) and pay your taxes by January 31 for any tax owed in the previous year.
If it’s a limited company you go for, your business and all the work you do becomes a separate party and you’re seen as both a director and employee of it. There are full details about how to do this on the gov.uk website.
You could also pay an accountant to help you with your taxes. Weigh up the pros and cons of doing this, and any costs involved, before you sign on the dotted line. In some circumstances, you may be confident doing your taxes on your own and keeping all the money you’ve earned. But if an accountant can help you to save money, it might be worth it.
Make a list of pros and cons to decide if it’s right for you. Ask questions of fellow freelancers and potential employers to find out how much work is available, what you might earn, and how much you would have for your savings. Weigh this against your current situation.
Write your business plan, including how much you need to earn to cover all your costs (don’t forget pension savings and sick pay), what skills you may need to improve upon and the costs involved, how many hours a week you’ll need to work, where you’re going to work, what equipment you might need, and how you’re going to manage any unforeseen costs that come up.
Tell HMRC when you go freelance and start managing your money and taxes straight away. There are lots of apps to help with this if you don’t want to spend hours trawling through spreadsheets and receipts.
Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.