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You’ve got the perfect name for your freelance consulting business. You may have even gone and registered your freelance domain name in a fit of excitement. You may even be lucky enough to have won your first client. It’s time to register your freelance consulting business.
If you’re like me, you may find the idea of going through the detail of finding out the exact process of legally registering a freelance business a little daunting. All that legal speak, acronyms, clauses for certain types of business. It can all get intimidating pretty quickly.
I’ve registered several UK freelance businesses before, getting the process done more quickly and with more confidence each time. Here, I’ll take you through everything you need to know, in plain English. But if I haven’t covered everything you need, leave a question in the comments below and I’ll answer it there.
This is the UK version of registering your freelance consulting business. Get the US version here.
When should I register my freelance consulting business?
If you’re not sure when to register that you are now a freelancer, here’s an easy answer for you: register as soon as you start working and charging for work you do yourself, outside of your day job.
Once you start working for yourself, HMRC classes you as a sole trader – even if you’ve not yet told anyone yet.
Still not sure whether you’ve started working for yourself?
Here’s a list that will help. If you match any of these, you’re a sole trader:
- run your business for yourself and take responsibility for its success or failure
- have several customers at the same time
- can decide how, where and when you do your work
- can hire other people to do the work for you or help you at your own expense
- provide the main items of equipment to do your work
- are responsible for finishing any unsatisfactory work in your own time
- charge an agreed fixed price for your work
- sell goods or services to make a profit
Matched any of the above? HMRC says you must register and follow their rules for self-employed tax and National Insurance.
One important thing to note is that you can be both employed and self-employed at the same time. Working your day job during the day but doing some freelance design work or copywriting in the evening? You still need to register as self-employed for that moonlighting work.
If you’re still not sure and want the official word, take this handy Employment Status Calculator from HRMC and see where you sit legally.
Should I register as a sole trader or as a limited company?
If you plan on just working for yourself and match the criteria in the section above, register as a sole trader.
However, if you’re going to be running your freelance consulting business with someone else, or are going to earn over a certain amount per year, you may want to think about becoming a partner in a business partnership or setting up your own limited company.
With a limited company, responsibility for the maintenance and running of the company (as well as the legal and financial responsibilities) all come down to you.
With a business partnership, responsibility for the running of the company and the legal and financial responsibilities are shared between each member of the company.
You can read more about setting up a business partnership or a limited company on the HMRC website, but for all intents and purposes if you expect to earn less than £81,000 a year (the point at which you have to register for Value Added Tax, or VAT), it will be best to register as a sole trader.
What information do I need to register my freelance consulting business?
Getting the required information together now will save you from having to go back and get it at a later time when you come to complete your registration – plus it’s also useful to have this information on file in case you need it at a later date.
When you register as a self-employed sole trader, you’ll need to provide the following information.
- Name
- Address
- National Insurance number (If you don’t have one, contact the Jobcentre on 0845 600 0643 or 0845 602 1491 for a Welsh language contact centre)
- Date of birth (You definitely should have one of these)
- Phone / Mobile number
- Email address (can be gmail, hotmail yahoo or whatever – as long as HMRC can reach you)
- The nature of your business (e.g. what you’ll actually be doing)
- Start date of self-employment (when you first started working for yourself)
- Business address (can be the same as your home address)
- Business telephone number (can be the same as your personal phone mobile number)
HMRC will walk through your registration with you, so making sure you have this information to hand is important so you can complete the freelance business registration process in one go.
I want to register as a self-employed sole trader and have all my information ready. What do I do now?
Now you’re clear on how you want to legally structure your freelance consulting business, it’s time to register as a self-employed sole trader with HMRC.
This breaks down into three main areas:
- Telling HMRC
- Keeping records
- Paying tax
Telling HMRC
This is it! The part where you actually register your business – exciting!
Her Majesty’s Revenue and Customs (or HMRC for short) will need to know that you’re now working for yourself to make sure that you pay the correct Income Tax and National Insurance. You’ll need all of the details you got together in the last section.
As a new business, you can register on the HMRC website and create your HMRC online account at the same time (registering online just makes it easier to keep your records updated and see where you are with certain requirements and deadlines).
You can also register by phone or by post (more details on the above link), but it’s much quicker and more convenient to register online.
You can also work out how much Income Tax and National Insurance you should be paying through Self Assessment.
Keeping Records
Most self-employed sole traders use cash basis reporting for their accounting records.
This is the most simple way to report your earnings, as you only record income or expenses when you receive payments from a client or pay a bill for your business. This means you won’t need to pay Income Tax on money you haven’t yet received in your accounting period, which is great for keeping a healthy cash flow going for your business.
As a self-employed sole trader, you’ll need to keep records of:
- all sales and income
- all business expenses
- records of your personal income
You’ll also need to keep proof of those incomes and expenses. The types of proof that you’ll likely have as a freelance and that HMRC accepts include:
- receipts for equipment or services you’ve paid for
- bank statements showing income and outgoings
- sales invoices for work you’ve completed
If you haven’t started keeping records yet but have started working for yourself and earning income as a freelancer, start now. Open up a spreadsheet, set up one tab to record all the work you’ve been paid for and when, then on another tab everything you’ve paid out so far to get your business up and running.
Start recording your incomes and outgoings now if you haven’t started already. You won’t regret it later and don’t want to be playing catch up at a later date, when you’ve got your head down in delivering actual client work.
Paying Tax
As a self-employed sole trader, you’ll also need to pay your tax each year.
HMRC says that this is usually made in 2 payments – on the 31 January and 31 July. Though this may be different and they’ll let you know when you register your freelance business.
For example, if you’re self-employed and the tax due for 2014 to 2015 tax year (1st April 2014 – 31st March 2015) is £3,000. For the 2015 to 2016 tax year(1st April 2015 – 31st March 2016) you make your first payment on account of £1,500 by 31 January 2016 and your second of £1,500 by 31 July 2016.
If the above is confusing, you can make working out how much you’ll like owe easier by using HMRC’s calculator to help you budget for this.
The tax rate varies depending what line of business you’re in, but to keep it simple it’s best to set aside 20% of whatever you earn as a freelancer. Setting aside this cash early before you’ve spent it is important. You don’t want to get stung by a larger than expected tax bill and not have the funds to pay for it.
Make this even easier to keep track of by setting up a separate bank account and putting 20% of whatever you earn from client payments into this account. That keeps is separate, means you won’t be tempted to spend it, and you’ll have the cash ready to go when the taxman comes knocking.
One good thing to note is that when you register your freelance business online, you can visit the HMRC website to see when your next tax return is due for filing. When you do your tax return online, you’ll also be shown a ‘tax calculation’ that tells you the tax due, the next payment amount due, and when these are to be paid.
When you first register online, make a note of the dates and put reminders in your diary – plus reminders for the month or two before to remind yourself to get your books in order.
I still have questions or am not confident I can register my freelance business properly, what do I do?
If you still have questions and are worried that you might not set up your business properly, then it may be best to hire a specialist to complete your business set up for you.
A good accountant will handle your freelance business registration for you and it will save you time and stress at a key period in your freelance career. Time saved here can be spent finding and winning clients.
It’s also a good idea to contact an accountant if you have a complicated financial setup, or will be freelancing in a sector with special rules or regulations (e.g. construction, childminding or taxi driving). Getting it right now will save you hassle in the long run.
Congratulations, you are now officially a freelance business
Follow the steps above and you’ll be the proud owner of a freelance consulting business in the UK – nice work!
Now the real work of finding freelance jobs, networking as a freelancer, keeping clients, and delivering high quality work begins. Luckily I’ve got plenty of freelance consultant guides for you to get started with.
Did I miss anything out or do you still have questions? Let me know in the comments.
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