To ask for advice on going freelance?

[KirstenRaymonde]

Sorry, I know it’s a pain when people use AIBU for not proper AIBUs, but the freelance section here is very quiet and I could really use the wisdom of the MN masses.

I’m talking to my old company about doing some freelance projects for them, possibly long term and then maybe with a view to doing the work for other firms as well, or possibly just short term -I may end up going back on a permanent contract.

I’m trying to figure out what I need to know to do this right. I know I need to register as self employed/freelance. Will I need a business bank account? How is best to track earning to make sure I pay the right amount of tax and national insurance, and on that note is the only option self assessment at the end of the year? (I am not a finance brain) I will be earning less than the VAT threshold. Can I claim tax back for business expenses if I’m self employed rather than a business?

If anyone with knowledge in this area has five minutes to share with me I’d be very grateful. Thanks in advance.

Hopefully bumping for the evening crowd

I presume you are not thinking of operating through a limited company - which would bring issues around IR35

To answer your questions:

1. You do not need a business bank account (although it makes things simpler)
2. You would be paying tax under self assessment
3. You would file your first tax return covering the period to April 5th 2019, by January 31st 2020
4. You can offset business expenses - but the whole thing is tricky if, in effect, you are working in the same fashion as a PAYE worker would have done.
5. An accountant might be useful.

Read up on IR35. It was specifically designed to stop what you are intending to do. If you don't do it right you will be financially penalised and poorer.

@cjm10979 why would I need to stop it? Lots of people in my field work freelance, a number of other freelancers work for the company doing the same thing.

I would be a self employed freelancer, not a company.

I also have no interest in trying to avoid paying the correct tax, that’s why I want to make sure I do it properly

There's loads of advice on going freelance online. Better to google a few of those sites then see a accountant than get dribs and drabs of info here. Unless anyone really wants to run you through it all. Lesson one of being freelance - figure it out yourself!

Sorry, not intentionally rude but it's honestly just simpler to find out the info elsewhere.

Good luck though, sounds like it'll be fine!

IR35 only applies to the way companies are taxed - ie the freelancing company is made to run a payroll for the 'employee'.

However, if you are a self employed person, the 'engager' can be forced to treat you as PAYE anyway - which is why a lot of people end up forming small companies.

Incidentally, your former employer, OP, can pay you on an ad hoc basis via PAYE if they wish - otherwise known as a zero hours contract.

As I understand it, if you're freelance but do all your work for one company, they have to deduct taxes as if you were a permanent employee.

… because in the government's view you aren't really "freelance".

@pinkdelight thanks I am doing my own research, but it never hurts to ask people as well in case they say ‘you should know x thing that you won’t necessarily come across easily’

Because in this situation you only have one client and they will normally insist on you setting up as a limited company to absolve themselves as being deemed 'your employer '.

@Chrys2017 ah ha, I see. Yes that makes perfect sense. They will certainly do everything by the book, it will be short term until I decide if branch out to other companies or return on a permanent contract. We’re still looking at what sort of contract makes sense for now.

Agree with @cjm10979 - if you end up being 'obliged' to form a company instead, you get a whole load of extra admin.

Why not just see if they can keep you on PAYE but under a flexible contract?

@cjm10979 they won’t, they’ve told me to read up on self employment.

It’s a complicated situation around my leaving and potentially going back, which is why an interim/short term sort of contract is being discussed.

I went freelance. I registered as self employed, I invoice clients monthly using a free template I got online, I keep a track of my accounts in excel. I have a business bank account but could manage without it, but you need to save roughly a third of everything you earn for tax so it helps to have a separate account. I did my own tax return for last year and it was pretty easy, just don’t leave it until the last minute. One thing to keep in mind is that when you do a tax return, you also have to pay a tax contribution for the next year as an advance payment, if this ends up being too much you get it back after self assessment the next year. But it could be annoying if you’re an employee by then and have to make a payout for tax just to want a year to get it back. There are some rules around not working for a company freelance when you could be an employee but ime with friends etc there are ways to get around that with how you word the contract and if you aren’t earning a huge amount it generally flies under the radar.

A short fixed-term contract might be best for you, as I believe you would be entitled to the same benefits/holiday etc. as a permanent employee, plus you wouldn't have to worry about tax. Will you be working on the company's premises?
ACAS has good information about this on its website.

Thanks @hotcrossbun83 that’s really helpful.

I’ll be working from home.

I take it you are not currently working from home?

There is no 'one size fits all' rule to divide employees from self employed.

After all, most employers would love to have all their staff on self employed contracts instead. It is not a choice but determined on the facts.

Make sure you get a decent increase in pay to take account of the lack of holiday pay etc. Bear in mind that when you were employed on, say, £20,000 your employer was paying a further £2600 in employers NI that you never saw. He is saving that this time. Also he will not be paying sick or holiday.

I was working partly from home, partly between two offices when I was on a permanent contract. It was pretty flexible, I went where I wanted when I wanted.

I will definitely bear that in mind on pay. I have a very good relationship with everyone I’m dealing with at the company - management, HR and Finance, which really helps for a good dialogue.

I am freelance with a small number of clients, so my finances are pretty straightforward. I don't have a business account but I have one that I only use for business. I use software called Freeagent, which really helps me to keep an eye on expenses and how much tax/NI I need to pay and when. It's about £20 a month.