Choose a Name: The name has to be unique, obviously, and not likely to be confused for someone else’s existing name. The best reference point is the Companies House website – www.companieshouse.gov.uk – which has a simple search facility so you can check your chosen version. Also, try to avoid names that are specifically related to your line of work, just in case you want to change careers later: imagine selling cars though a company called Al’s Bakery.
Decide on Share Ownership: Is this just you, or you and your spouse, or you and two or three other people? This is important, because it defines how to allocate the Ordinary Shares In the company. Dividends are paid in direct proportion to numbers of shares held. A husband and wife typically have 50% each, for example, but if one is already earning money, be aware of the impact of the share income on their tax position. Share allocation can be changed after the event. There are several variations on share management; but for anything other than a simple allocation of ordinary shares, get expert advice.
Register at Companies House: There is an online system you use to set up your company and pay the registration fee. It is fairly simple to use. One question it will ask is who the directors are. For a typical small contractor company you only need one but there’s no reason not to have more. Although not strictly necessary any more, it also helps to nominate a Company Secretary: this could be the same person, but it’s more sensible to have someone else, a partner or relative for example.
Register a Memorandum of Association: Something else to do while you are at Companies House. At its simplest this is a document describing what your company is for and how you wish to run it. You can do it yourself, but the document can have legal implications in a tax investigation so do some online research for a suitable template from sites such as www.simply-docs.co.uk or www.clickdocs.co.uk.
Set up a Bank Account: This has to be a business bank account. Banks are increasingly wary of new business accounts, so you will have to answer some detailed questions and it will help if you have some professional references and a signed contact to demonstrate you actually will have an income.
Register for VAT: You have to do this if your annual income is in excess of a set amount (currently £67,000 pa) but it Is advantageous to register anyway. VAT and the Flat Rate Scheme are discussed in more detail elsewhere.
And that’s it. It sounds complicated but is in fact quite straightforward. You can also take the easy way out; either use a company formation agent, or there are several accountants who specialise in contractors who will set up all if the above for you for a small fee, or even for free, as well as providing expert support. Finally keep track of all your various expenses setting the company up, since you can reclaim these once you start trading.
The first thing is to think about why you want to go freelance. While permanent jobs are increasingly unreliable, the one certainty of freelancing is that you will be out of work at some point and you won’t have a formal support structure around you to help out.
Although, of course, that is exactly the way many freelancers prefer it. So having decided to go freelance, here are the steps you take.
Understand the Freelance Business: There are many good guides to freelancing out there, such as the one on the PCG’s website. Read as many as you can find so you understand what it is you’re getting into. You will be amazed at how much you don’t know, from expenses to the Opt Out.
Prepare a CV: A freelance CV is different to an employee’s one. You are only selling skills and achievements. Career progression is now of minor interest, and details of education, hobbies and interests are largely irrelevant. Keep it focused and concise; it is your primary sales tool so spend time getting it right.
Resign your current job: Unless you are very lucky, it is difficult to get a contract if you have to serve out a notice period. Bear in mind you have no history as a freelance, and are in competition with people who can start tomorrow. You should build up as big a war chest as you can then take the plunge. You will have to survive a while with no income; even if you get a contract straight away, there will still be a delay before some money comes in so make sure the mortgage is covered.
Get a Contract: This is the really tricky bit. If you have a network of contacts, you may be able to find something by yourself, but mostly you will be using agencies through websites such as Jobserve and the like (there are around 1200 on them on the web these days). The basic process is find a job you genuinely can do, send in a tailored CV emphasising the key points for this job, then follow it up with a phone call. Be prepared to repeat that process many times
Decide how you will get paid: In reality there are two choices. You can use an Umbrella company, where you become their employee and they look after all the payments and taxes for you for a fee., or you can set up your own limited company If you’re using agencies, you almost certainly can’t work as a sole trader. Umbrellas are safe but expensive, Limited Companies are not that difficult to run but do require more work and decision making from you.
Get an accountant: If you are not using an umbrella, get a good accountant that understands the freelance business properly. They will be an invaluable source of guidance until you have enough experience to do it yourself; and even then you should still consider using one.
Get your contract reviewed: You should do this anyway, but if you are using your own company you have to pay attention to your IR35 status. This is discussed in another article.
Do the job: Sounds trite, but you are as good as your last contract. Do it well, don’t abandon it half way for something “better” and remember that you are the expert or they wouldn’t have hired you.
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