freelancing

what is a freelancer?

freelancers are self-employed individuals (ie they work for themselves) who offer their skills or services in exchange for compensation and are often paid per job completed. freelancers can be referred to as consultants or contractors depending on the work they provide. 

being self-employed usually means that an individual does not have the employment status of ‘worker’ or ‘employee’. this has significant implications for the employment rights they have, which employers must uphold.

freelancers will take on work for several different customers or clients rather than work for a single organisation. their clients can include private individuals and other businesses. they often work on multiple projects or jobs at a time because they have the freedom to pick who they work for and when - unless they choose to contractually commit to one project at a time. this also means they are free to decline work.

freelancing is suited to more creative and digital roles, but there are opportunities to freelance in any industry provided there is a need for it. common freelancing roles can include engagements for:

• writers (eg journalists or novelists)

• graphic designers

• video editors and content creators

• web designers and developers

• photographers

• virtual assistants

• business advisors

• data entry specialists

• bookkeepers

how to become a freelancer

freelance businesses are diverse in scale, industry, and tactics, so there is no set guide to freelancing. however, there are some crucial steps anyone aiming to freelance successfully should take:

1. identify a marketable skill or niche

be honest with yourself here, make sure that your skills match or exceed what is already offered in the market you want to enter. 

developing a niche (ie a unique specialisation) will help increase the demand for your service or skill.

2. pinpoint your target demographic

your target demographic is the group of people you aim to sell to.

consider the type of customers you want to sell to and work with, and consider where they are located. this will help you position your business in the market.

3. create a business plan

using a business plan to break your goals down into smaller steps and to plan the action you will take is crucial to running a successful business (see below for more information on business plans).

4. set your freelancer rates

be optimistic yet realistic with your pricing. factors to consider include your experience level, your location, the costs of your business, and competitor pricing. 

as a freelancer, you should be offering either an hourly rate or a fixed service/product price (ie by charging a specified amount for a unit of your product or service).

5. market your business

having a great skill or service will only be profitable if people know about it. utilise social media and free marketing and advertising methods (eg email marketing) to expand the reach of your business. try to engage with and angle yourself best to your target demographic as much as possible. consider working with partners and influencers to expand your reach and boost your business’ reputation. 

6. build your portfolio

your portfolio is a showcase of your work to show off what you can do. gather customer stories, photos, and any other evidence of your work to display for interested customers - either on your website or in your workplace.

7. mix and mingle

networking events, online groups and forums, customer boards, and freelancer communities are fantastic ways to grow your network and spread the word about your business.

legal and commercial considerations for freelancing

freelancing is often associated with people doing something they enjoy, be it a hobby or skill, for profit. it can be easy to forget that you are running a business, so some of the legal and practical considerations are often pushed aside. this could be the downfall of any budding freelancer’s business. 

considerations to keep in mind when running a freelancing business include:

having a comprehensive and up-to-date business plan

a business plan is important to have when running any type of business. it is a document that outlines the goals of the business and how you hope to achieve them. you will break down your business strategy into smaller steps and timeframes for completion. 

a business plan will also help you identify potential issues, meaning problems can be solved ahead of time. it can be used as a benchmark to measure the business’ progress against.

there are several different elements that make up a business plan, including:

• management and operations - establishing who will run the business, how they’ll be engaged, and how they’ll work 

• the executive summary and business outline - providing a high-level overview of your business and a detailed outline covering the concept and assets

• market analysis and strategy - detailing research on your target demographics and how you plan on engaging with paying customers

• financial information and requirements - setting out the monetary data and projections which will support the business

• swot analysis - summarising the advantages and disadvantages the business faces

choosing the business structure that’s best for your business

as a business owner, freelancers will need to consider which type of legal entity they want their business to be before they begin selling their skills. the 2 most common types of freelancer business structure are sole traders and private limited companies (or ‘ltds’). each of these business structures has various advantages and disadvantages. for more information on these business structures and how to set them up, read choosing your business structure.

companies set up by freelancers to run their business through are often called personal service companies (ie pscs). whether or not a freelancer provides services to customers via a company like a psc has implications for taxes paid and the administrative burden of these. for more information, read ir35.

building an engaging and compliant website

setting up your own website can be hugely beneficial as a freelancer because it provides a visible area for your business to be seen. through your website, you can: 

• create an online presence for your business

• develop a style for your brand

• provide a space to display your portfolio of work

• market your skills and services

• interact with customers

• create an easy system for customers to use to ask for and pay for your work

if you do set up a website for your business and interact with your customers this way, there will be extra laws and regulations to consider. to learn more about these, use our running an online business checklist.

tax considerations for freelancers

all businesses are legally required to pay some form of tax. the type of tax that you pay will be dependent on the type of legal structure you work under (eg whether you’re operating as a company or working as a sole trader) and on your business activities.

if you are running your freelance business as a sole trader, at various points of business activity you may need to may:

• income tax - the standard type of tax that employees and self-employed individuals generally pay

• capital gains tax (cgt) - a tax often charged on profits made on the sale of assets

• your national insurance contributions (nics) - a tax most employees and self-employed individuals must pay, which can qualify them for the state pension and certain state benefits

you should also be familiar with the ir35 rules (a tax avoidance regime).

if you are running your freelancing business through a company or psc, you will need to consider:

• declaring the company’s turnover to hmrc

• paying corporation tax (ie the key type of tax a company pays)

• using pay as you earn (paye) (ie the system through which most employees pay their income tax and nics)

• the ir35 rules

businesses also have to charge their customers value added tax (vat) once their turnover exceeds a certain threshold. to determine whether you need to register for and charge vat, read vat.

for more information, read 4 questions on tax obligations for your new business.

holding appropriate insurance

obtaining insurance will protect your freelancing business.

if you are a sole trader, it is especially important that you cover yourself against losses and damages because you will be personally responsible for covering these. 

if you are freelancing via a company, then there is a level of separation between your business’ finances and your personal finances (ie ‘limited liability’). this will provide you personally with some protection for certain liabilities (eg losses). however, it would still be wise to insure the company and yourself against business and personal issues which might arise in relation to your work.

for more information, read business insurance. 

managing freelancer relationships

actively managing business relationships is another protection measure for your freelancing business.

ensure that you have the terms of your agreements with customers set out in writing and signed in formal contracts. these should clarify the extent of the service you’re providing, project timelines, payment terms, and the extent of liability that falls on you (in case any issues arise). you can do this using: 

• an engagement letter - to make a simple services contract for the one-off or ongoing provision of services, which can include the creation of products for the customer 

• a consultancy agreement - to create a more complex, overarching contract between the parties that sets the terms of various different engagements 

there may be circumstances when you, as a freelancer, would like to protect sensitive information or data that you share with a customer in relation to work you complete for them. you can use either a letter of confidentiality or a non-disclosure agreement to protect your privacy.

sending an invoice (ie a legal document requesting payment for services) to your customers will remind them to pay for your services. you can make invoices using our invoice document and faqs.

you may encounter issues relating to customer payments. whilst it is important to trust in your customers to maintain good business relationships, you should ensure that you are paid. use our how to recover debt checklist to manage outstanding payments effectively. you can start the debt recovery process legally and diplomatically using a debt recovery letter, and can agree to a repayment plan with a customer using a letter accepting payments in instalments. 

protecting your intellectual property

whether you come up with innovative ideas or inventions in your own time or in the midst of a customer project, they can be valuable assets for your business. if you do not take steps to protect your ideas, they may get taken and used by others.

ideas like these can be protected by intellectual property law. to learn more about intellectual property (ip) and how it might affect your business, read intellectual property.

you can protect your ip by registering a trademark, registering a design, or making a patent application. once protected, you can allow others the right to use your ip by entering into an agreement with them, such as a trade mark licence agreement. if you find that someone is using your ip without your permission, you can send them a cease and desist letter to begin resolving the situation.

other considerations

businesses are required to comply with many areas of the law. depending on what business activities you perform, different regulations will apply to you. areas of law that you should always think about include: 

• health and safety laws - all businesses are impacted by health and safety laws. ensure that you are complying with the correct ones

• data protection - data protection has become a significant consideration for all businesses given the rise in consumer legislation and online data laws

when should a business use a freelancer?

there are a variety of reasons why businesses choose to hire freelancers, which is why there is an abundance of freelancer communities. a business may use a freelancer to:

• benefit from their unique expertise and high quality of work - as they are often well practised in their field of work

• keep costs low - for businesses that only need odd jobs done, it can be cheaper to engage freelancers on an ad hoc basis than to hire an employee

• meet short-term deadlines - as they are used to jumping straight into projects and are paid per job completed

• get a fresh perspective - as they will have picked up many insights from working with other businesses

when deciding whether to use a freelancer, businesses should keep various considerations in mind. for more information, read using consultants.