guide to freelancing

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  1. 1. Guide to Freelancing 1 Guide to Freelancing Welcome to the IPSE Guide to Freelancing. Please bear in mind this guide is aimed at UK freelancers, so any tax issues and other legalities mentioned here are governed by British rules. All content within this guide is correct at time of print and relates to figures for the financial year 2013/14.
  2. 2. Contents 01 Section 1 Introduction About this guide About freelancing If you do nothing else, do this. 05 Section 2 Setting up your freelance business Setting up in business Limited company: why you might want one Alternatives to a limited company 16 Section 3 The Books: Handling the business finances Accountants Bookkeeping Money in the bank Money in your pocket Money out 30 Section 4 Paying the taxman: What to pay, how and when Value Added Tax (VAT) Taxation of limited companies Taxation of sole traders, partnerships and LLPs 37 Section 5 Running the show: How to manage a successful business Where is your HQ? Winning work Managing the workload Financial planning 53 Section 6 Risk prevention: Insurance and protective measures Assessing risk Compulsory insurance Worth considering
  3. 3. Guide to Freelancing 1 Section 1 Introduction This section covers: 1. About this guide Who its for and how to use it 2. About freelancing Career paths and how to go about it 3. If you do nothing else, do this. The freelance checklist About this guide Hello and thank you for choosing the IPSE Guide to Freelancing. Please bear in mind this guide is aimed at UK freelancers, so any tax issues and other legalities mentioned here are governed by British rules. All content within this guide is correct at time of print and relates to figures for the financial year 2013/14. If youre just starting out... Are you thinking of starting up as a freelancer, contractor or consultant? Some of the heavier tax and regulatory matters can seem rather daunting if youre not familiar with them but it doesnt all have to be done in one go. Give the whole guide a quick scan first and then come back to individual chapters later, scheduling a separate chunk of time for each section. If you put things in practice bit by bit, you will become much more fluent over time developing that broad business savvy is one of the most rewarding parts of being your own boss. If youre already established... The guide is a useful reference source to keep abreast of current regulations. Either way, dont skip... The freelance checklist at the end of this section. If youre just starting out it will help you plan your launch and if youre already established it will help you to review your current set up.
  4. 4. Guide to Freelancing 2 Taking the plunge... Its easy to delay and make excuses about not being sufficiently prepared. Id say if you have a clear idea of what you want to be doing, the skills to do it, and you have a financial buffer in place, just jump in and give it a go. I honestly think one of the biggest hurdles to starting out is worrying too much about being prepared. It cant hurt to read a few guides and talk to people, but when it comes down to it if youre suited to freelancing, youll soon find out. If not then you can always just find yourself a regular job nothing wrong with that. Long story short, just get out there and do it. Frank G. Freelancer And dont forget, were here if you need us IPSE is the UKs only not-for-profit association dedicated to supporting, representing and protecting the freelance community. So far 22,000 UK freelancers have joined IPSE because it helps them get ahead in business. To find out more visit www.ipse.co.uk About freelancing I cant tell you how much admiration I have for people who leave the comfort of a regular wage to strike out on their own. It takes a lot of courage, and without that courage this country would be a much poorer place, Prime Minister David Cameron Freelancers play a pivotal role in Britains 21st century innovation-driven economy and are increasingly being recognised as key drivers of wealth creation in the country. You no longer have to belong to a large company to be credible. In fact, big brands are fragmenting and the personal brand is emerging as the force of the future. Experts are saying that, in the networked economy of today and tomorrow, individuals are as important as a big company. Different ways of freelancing Freelancer is a broad term covering many different ways of working independently. Some people work on long term contracts, doing a full week at a single client site for several months until the contract is finished or renewed. Others work with several clients at a time or on a series of fast turnaround projects. Freelancers use different terms to describe what they are, e.g. freelancer, contractor, consultant, independent professional, interim, portfolio worker, self-employed, business owner. They use a range of legal forms to run their businesses, including limited companies, sole traderships, partnerships, umbrella companies and others. They might brand themselves using their own name, or else create a completely separate business brand and logo, presenting themselves as a small business rather than an individual. Some work through agencies, others directly with their clients. Some charge by the hour, some by day or week, and others give a fixed project fee. The unifying factor is that freelancers are their own bosses and have commercial, business-to- business relationships with their clients.
  5. 5. Guide to Freelancing 3 To go freelance, you dont necessarily have to work in the traditional areas associated with freelancing such as media or IT. More and more people are finding creative ways to exploit their skills in all sorts of areas such as business development, environmental consulting or even offering training in niche areas, for example selling to government departments. Building your own career ladder Freelancing is not for everyone. There are risks. Its not an easy option. In fact, the survey conducted by IPSE in 2010 showed that the general population was happier with working hours, time for themselves and time with family, than freelancers. However, with risk comes reward. In the same survey, freelancers were shown to be happier overall than the general population. IPSEs annual membership surveys consistently show that most people go into it because they want to, not because they are forced into it through redundancy, while only three percent plan to use it as a stopgap while they find a permanent position. Moreover, two thirds of freelancers continue to work as freelancers because of the autonomy it gives them. Anyone choosing the independent route will need to build their own career ladder and work out how to structure their business in a way that frees up their full potential. The business will also need to be supported by some kind of promotional activity to ensure a sustainable level of work. And when it comes to deciding which marketing technique works best, there is no magic wand. There are almost as many views on effective marketing as there are freelancers. As with so many things, you have to take what works for you, adapting the techniques that best fit your style and industry the section in this guide on winning work will give you some ideas to try out. It is certainly worth experimenting with different approaches until you are able to narrow down those that deliver the best results for you. Its a good idea to revisit your goals and long term plans regularly, benchmarking your journey and adjusting course if necessary. There is nothing wrong with switching business models or re-inventing yourself completely at different points in your career. For example, someone starting out as a programmer can later morph into a project manager and eventually into a management consultant charging a premium fee. Just as travel broadens the mind, a freelancer will have a broader and more colourful experiential mind-set than executives or owner- managers Tony Lahert CEO, Step Solutions, Argos Direct The Role of Freelancers in the 21st Century British Economy). If you do nothing else, do this... Time estimate THE GRAND STRATEGY Check About a day Do a simple business plan. Template available to IPSE members Couple of hours Do a financial forecast. Template available to IPSE members Under an hour Write down a cash flow strategy to mitigate against late payments or income gaps. Time estimate ADMIN MATTERS Check Couple of hours Decide whether to set up as a sole-trader, limited liability partnership, limited company, or under a PAYE umbrella. Big decision. Allow a day or so. Source an accountant (unless you went the umbrella route). Ask for recommendations and referrals on the IPSE legal & accounting forum. Check whether the service includes a basic record keeping and invoicing system. An hour or less If your accountant doesnt provide one, source a record keeping and invoicing system. Ask for recommendations on the IPSE legal & accounting forum.
  6. 6. Guide to Freelancing 4 Time estimate ADMIN MATTERS Check A few days Get a bank account set up in your company/business name. Couple of hours Send relevant forms to HMRC (ask accountant for assistance). If in doubt, call the IPSE tax helpline. An hour or less Consider the VAT Flat Rate Scheme discuss merits with accountant and if applicable, apply. Time estimate IT & SYSTEMS Check Can take weeks Install internet and email. Ask for help on the IPSE technical forum. 1 week Get business phone line, mobile phone and, if necessary, a fax. A few days Source computer/s, printer, backup system and any other equipment needed - ask for help on the IPSE technical forum. Several hours Install software. Half a day Set up a professional base to work from. Time estimate THE BUSINESS DRIVE Check Half a day Review business plan and decide which business model, price bracket and marketing tactic to focus on. A fe