How to become a UK freelancer
To be an official freelancer, you need to register as self employed with Her Majesty’s Revenue and Customs (AKA “the tax man”, or HMRC for short) as either a sole trader or as having a Limited company.
Registering means you can legally earn money as a freelancer.
Do I need to register if I already have a normal job
If you are going to earn money as a freelancer, yes. This is how the government manages the earnings you get on top of your normal job.
How to register
The differences between these in the briefest of summaries: if you just want to do a bit of freelancing, sole trader is fine. You can trade as just your normal name and use your normal bank account to handle the money you earn from freelancing.
If you own your own home, or expect to earn a lot of money, a Limited company could be better for you and allow you to protect your home from any problems that happen with your company. Talk to an accountant about whether it is worth having a Limited company so they can find out about your particular situation. A Limited company has to do its own corporate tax return and have it’s own bank account separate from your finances, so it’s more complex but not a massive hassle. You will still need to do a self assessment tax return as a director of the company, but it is much simpler than doing it as a sole trader.
Most of the freelancers in The Farm started as sole traders and moved on to having a Limited company as they got the hang of freelancing, committed to doing it long term and earnt more money, or bought their own homes. Getting a mortgage is a lot easier if you’ve had a Limited company for at least two years before you try to get the mortgage.
Help, I’ve already started earning money as a freelancer! Am I in trouble?
While it is ideal if you register quickly, the HMRC give you until 5th October in the tax year after you’ve started earning money as a freelancer to register.
So for instance, if you started earning money as a freelancer at Christmas 2018, you have until 5th October 2019 to register. The tax year changes over on 4th April each year, so you have a big leeway to register if you didn’t realise you should have. When I went freelance in 2003, you only had a matter of weeks to register so the current system is much more friendly.
Do I need to do anything else?
The HMRC will contact you about making Class 2 National Insurance payments, these let you receive a state pension when you are retirement age and contribute to various allowances. They are a very good thing to pay so plan to do that.
They will also contact you about doing a self assessment tax return after the tax year is completed. This lets them calculate how much tax you owe for the freelance work you have done.
What do I do when I’ve registered?
Get on with the nuts and bolts of being a freelancer. As in, find work, do the work, get paid, save some money. You know, the easy part!