Many of us dream about being our own boss, working the hours we want and following the path we desire for our career. And a growing number of people are doing just that with the number of new start up businesses and freelancers growing on a daily basis. But how can you become one of them and start your own freelance business?
Have an idea, product or service
It might be obvious to say but you need to have an idea, a product or a service to offer that people will buy to begin to make money. For some, this might mean using an existing talent or skill while others might look to take some training to learn a new one. Whatever the path you want to take, you need to have an idea where you are going to make money and that means a product or a service.
You also need to do a bit of research about that idea to see if it is viable. Look at similar kinds of products or services and see if they are selling. Is the market saturated or can you offer something different enough to your competitors to create a niche? Is there a great demand for the service even if other people are offering it?
Setting up the business
Once you have an idea what you are going to offer the customer, you need to go about setting up the business. This will include notifying HMRC that you are going to be self-employed. There are two main paths to take when doing this – as a sole trader or as an unincorporated business. You can also look to become a limited company.
Sole trader
As a sole trader, you are the business and this is definitely the simplest option for a new freelancer, regardless of the trade or service offered. You can become a limited company at a later point if this suits your needs. You can pay 40%+ tax on your earnings, depending on how much these are.
Being a sole trader means there is no difference between you and the business. This means if the business fails or falls into financial difficulties, then you as an individual will be liable for those expenses.
Limited company
A limited company is a legal identity of the company and you are the head of that company. Limited companies need to register with Companies House and have a certificate of incorporation, confirming it is legally created. There are restrictions to things like company names too. You will pay 20% corporate tax as a limited company.
Another factor of being limited is that any losses of the business can be carried into the next tax year and don’t affect you personally in their entirety. There are also more tax breaks for companies than for individuals.
Create a portfolio and an online presence
Once you have handled the legal stuff and are registered for the relevant tax system, you can start creating your portfolio, your online presence and start work. Look to build interest in your product or service before you start it and then you have a better chance of hitting the ground running!