What is a freelancer?
A freelancer is an independent contractor who provides services to different clients. For example, freelance writers might provide content strategy and development services to startups. Freelancers are not treated as employees for tax purposes and enter into consultancy services agreements with their clients. A freelancer can work in their name as a sole trader or via their own limited company.
Type of freelancers
Generally, you can be a freelancer in any field however some professions are more common than others. In 2022, some common in-demand skills which businesses outsource to freelancers include:
- web design
- SEO
- copywriting
- digital marketing
- graphic design
- accounting
- social media management
While some traditional freelancing roles remain like consultancy and accounting, the growth of new businesses and online presence means that businesses require specialist skills to bring their product.
The advantages of working as a freelancer
As a freelancer, you have the flexibility of working for a client of your choice on a project of your choice and on a schedule that suits you.
Flexible working hours
Everyone has different preferences when it comes to working hours, you may not want to work the typical 9 to 5, or you may want to pick your hours, not be restricted to just the weekends and annual leave.
Choose your work
Not only do you choose your hours but you can also choose the type of work you do. The ability to pick which projects you work on provides significant satisfaction to individuals as they can focus their energy and effort on projects they are passionate about and in turn produce meaningful work.
Diversified sources of income
As a freelancer, you may be working for multiple clients or just one. Either way, you have the option to diversify your income which means you are not reliant on one business. If the entirety of your income is dependent on one company, like it is for employees, it leaves them vulnerable if that company decides to lay off staff.
Limitations of working as a freelancer
While there are benefits of the "gig economy" work it comes with its fair share of drawbacks. Before you begin freelancing you should consider the following drawbacks.
Fluctuation in earnings
Because freelancers are self-employed, they don't have the security normal employees do. For example, knowing you will receive a salary at the end of every month or that you could take annual leave and not lose out on money. Forecasting for the future or even as early as next month may prove difficult as earnings fluctuate. Seasonality, current economic conditions, and other factors can impact earnings, so it may not be a route for those who like stability and certainty unless their freelance business can guarantee this.
If you have financial responsibilities such as a mortgage, loans and a family then quitting your job and starting freelance work can be daunting and scary. You may want to get your ducks in a row while you have some stability such as building a portfolio and working on a few small projects in your spare time to gauge the demand for your work.
Lack of employee benefits
When you start freelancing, you don't have access to benefits like 25 days of annual leave or maternity leave, so you will have to factor this in and budget for unforeseeable circumstances. Usually, employers accommodate events like sudden death and allow employees to take compassionate leave. As a freelancer, you don't have this luxury, so it's best to be mindful of this.
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How to further your freelance business
The demand for your services impacts your livelihood therefore it's important that your freelance business does well. There are several ways to progress your freelancing career. The first thing you need to do is identify what kind of work you want to do and who will pay you for doing it.
Finding clients
One way to expand your freelance business is by accumulating clients. There are a few ways that you can go about finding clients:
- Social media (Instagram, Twitter, TikTok)
- Online job boards (Fiverr)
- Networking events relevant to your field
- Word of mouth
- Repeat clients
- Referrals
Professional development
To ensure a constant demand for your service it's important to be an expert in your field. If you are a graphic designer, you will need to have relevant education or qualification to prove your knowledge. Continued professional development is vital to having a successful freelancer as it allows you to stay up to date with market trends, allowing you to have an attractive price service offering.
The more specialised you are the more sought after your services will be. For example, if you’re an English writer who wants to help other English-speaking businesses translate their content to Spanish, you’ll need to find Spanish courses that fast-track you to near-fluency. Progressing your freelance career will be similar to employees except you have more flexibility at what pace you go.
Showcase your talent
What can be more useful is if you have a great portfolio showcasing your previous jobs that potential clients view. For example, if you are a copywriter, a portfolio of blog articles will be useful for a prospective client to assess your writing style, variety and suitability.
Consider creating content for social media, regarding your business. Having an online following and presence will improve your credibility and will facilitate a channel for generating business.
Nurture your relationships
The quality of work you produce is very important as it will determine whether clients use you for other projects and if they recommend you to other businesses. Word of mouth is one of the easiest ways to get freelance jobs as it doesn't require any time or effort from you however you must nurture your client relationships and ensure you provide good quality work.
If you are responsible, reliable, punctual and produce good quality work you will gain trust and most likely will be contracted for future projects by your clients. This can provide some stability and certainty financially and will provide good reviews for your freelancing services.
How to set up as a freelancer
You would have to register with HMRC if you generate more than £1,000 in income per financial year from your self-employed activities. Once you have set yourself up as a sole trader, you will need to:
- Keep records of your self-employed sales and expenses
- File a self-assessment tax return every tax year
- Pay income tax on profits as well as national insurance
As a sole trader, you are effectively your boss and you can trade in your name or choose a business name. However, your sole trader name can't include limited, Ltd, limited liability partnership, LLP, public limited company or plc. Self-employed individuals need to register their names as a trademark to prevent people from trading under their names.
Does a freelancer need to register for VAT?
When your annual turnover (also known as sales) exceeds the VAT taxable threshold, you must pay VAT. For the 2022–2023 tax year, this level is £85,000.
How to pay tax as a freelancer in the UK
When the client pays, the full amount goes to the freelancers unlike when employees are paid. This means that freelancers must declare their income to HMRC and pay tax on earnings. The amount of tax you pay will depend on how much income you generate for the year. You do not need to register with HMRC on income under £1,000.
On income over £1,000, you must register with HMRC as self-employed and submit a self-assessment tax return by the 31st of October of the following year and pay self-employment taxes by the 31st of January.
As a freelancer, you still have the standard personal allowance of £12,570. This is the amount of income you do not need to pay tax on.
How to complete a self-assessment return as a freelancer
When completing your self-assessment you will need to complete section SA103 if you need to pay tax on income from self-employment.
You must keep all your expense receipts and sales invoices. Although you do not need to present this, HMRC state that you must keep records for 5 years as they may ask you for this. You will need to fill out the income and expenses section. You do not need to itemise each expense unless you are VAT registered.
VAT
When your annual turnover (also known as sales) exceeds the VAT taxable threshold, you must pay VAT. For the 2022–2023 tax year, this level is £85,000.
Conclusion
At any point in your freelancing career, it's important to know what you are getting into first before you jump headfirst into the fray. It's also important to understand how likely you are to make decent money with freelance work. If you show restraint when it comes to pricing, ask for more than one job at a time and stay active on platforms where clients can find you, then the potential for making good money is quite high.