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Introduction to freelancing

The world of freelancing can be hard to navigate, so our Community Mentoring Officer Aksana put together a starter pack of advice.

At the moment it’s a sad reality that there’s a lot of competition for full-time, permanent jobs with employee benefits such as pensions, sick leave, and paid time off. In creative fields especially, you’re more likely to see short term contracts. These can come in the form of zero-hour contracts, where you aren't guaranteed any billable hours of work, or fixed-term ones, where your employment is only guaranteed for a short period. Since COVID-19 struck, we are also seeing more demand for freelancers as it costs an organisation much less money to hire a self-employed person over a contracted member of staff.

So what does being self-employed mean?

Technically, when you're self-employed you are your own boss. Anyone who hires you is your client, and you are your own HR, marketing, and finance department! Some people really enjoy the feeling of empowerment that comes with setting your own path and the variety of experiences that being self-employed offers. But it also means that there’s less certainty over how much you can be earning month-to-month.

Unlike being on a zero-hours contract, or any other PAYE contract, you have additional responsibilities. You make your own pension contributions. Plus you are responsible for telling HMRC your earnings, paying them your national insurance contributions and income tax. You have to tell them through your tax return which is due every year on 31 January.

What do I do about tax?
I’m nervous about doing a tax return!

HMRC will tell you how much national insurance and income tax you’ll pay after they deduct your expenses from your income. You can be prepared for the amount they’ll say by:

  • Using the HMRC calculator
  • Downloading the HMRC app onto your phone or tablet, and log into it every now and again so that you can get familiar with what HMRC does and what’s expected from you by 31st January
  • Making sure you’ve labelled your invoices with dates and series numbers and organised your receipts too
  • Not doing your tax return all in one go! You can always go back to it so you don’t have to do it last minute. Some freelancing palls might be up for doing a “tax party” where you get a take out, put on some music, and do your taxes at the same time. (Not exactly the ideal party, but it needs to be done!)
Do I need an accountant?

You don’t have to have one! But they are useful. Some people get accountants to help track their expenses and submit their tax returns. But an accountant isn’t the same as a financial advisor/planner. An accountant helps you with getting your tax return ready for HMRC. A financial advisor is someone who gives advice on future money planning with things like pensions, mortgages, investments etc.

If you’re someone who’d rather do it yourself, you need to be really good at being organised, spreadsheets, and keeping an eye out on your money!

Should I work for a client/organisation without a contract?
  • It’s important to have contracts in place so that everyone knows what to expect from each other and what the boundaries are. A client refusing to sign or offer a contract is a red flag

  • You shouldn’t feel pressured to sign the first version of a contract. Read it first, and ask questions. Make sure that both you and the company/client know what you’re expected to do, including redrafts and re-workings, how much time you will be spending on the work, and what the process for extending these parameters is

  • You have a lot more power in the beginning when you’re negotiating your contract. Before you sign a contract, you have a say in when you can send in an invoice, what your responsibilities are, as well as your deadlines. Depending on the context, you can also ask for the company to pay for expenses too (e.g. travel and hotel).

  • When it comes to creatives, a particular sticking point is “intellectual property rights.” This means who owns your created piece after you’ve made it. If you’d like to make sure that you own the work and would like to get publicly credited (known for doing the work), your intellectual property rights need to be clearly stated in your contract. This may differ according to each sector e.g. graphic design, films, music, events producing etc

I don’t know how much to charge for my work, help!

It’s tricky as interpretations of fair pay differ from industry to industry. But what you shouldn’t accept the assumption that your day rate is minimum wage multiplied by 8 hours (the working day). It’s exploitative and doesn’t take into account money that your day rate accounts for your pension contributions and being able to afford taking time off work. If you’re unsure about how much to charge, it’s important to assess your personal finances and do market research:

  • This isn’t a hard and fast rule, but one formula is to increase your ideal salary by 30%, and divide by 220. This is because 30% takes into account stuff like tax and leave, and 220 is a reflection of how many days you would work in a year as well as holidays. If you’re too tired to do the maths, here’s a day rate calculator

  • Getting to know as many people in your field so that you not only have friends, but you can better understand their work, and you can build a better picture of what fair pay means

  • Downloading different types of briefs/tenders so that you know what other organisations expect. It’s helpful to do this even if you’re already employed. That way you’re learning sideways about people like you, and you can see what the next step up looks like!

  • Joining a professional network/union and seeing the research they’ve put into this. Take for example,
Why do people describe being self-employed as a ‘rollercoaster’?

When you’re self-employed, your mood will probably be affected by the inconsistent amounts of money in your bank account on a monthly basis. When there isn’t enough work - especially if your sense of self worth is closely tied to how many bookings for projects you get - rejections can feel even worse. So it’s important to zoom out and put your emotions in a wider context. Most people say that it takes about five years for a business to take off, so try to look after your wellbeing as much as you can. What can help is:

  • Tracking your cash flow over time. This way you can spot trends, including periods of intense bookings vs quiet times in your industry. This helps with predicting future moods, especially when there aren’t enough projects

  • When you have periods of less paid work, you can use them to catch up on accounting, reading, training on something, or doing a bit of light networking

  • Quiet periods are also an opportunity to catch up on things you hadn’t had the chance to before, even if it’s that massive spring clean or just meeting your loved ones. Don’t feel bad if you aren't’ “productive” about it. It’s okay to not just do, but be

How do I know if I should go full-time self employed?

There is no formula to this, as it’s up to you. Anyone who is self-employed has to get really good at time management! People can figure out what works for them by

  • Experimenting with self-employment, by taking on short-term freelancing projects on top of their full-time PAYE job

  • Integrate freelancing with their part-time PAYE job. This is so that they know if they don’t get freelancing gigs, they already have a consistent cash flow from their day job outside of self-employment

  • Balance having a zero-hours contract elsewhere (like in a cafe or a shop) so that they can flexibly take on freelancing gigs

Everyone is different and it’s up to you to weigh the pros and cons. Plus, even if you decide to not freelance full-time one year, it doesn’t mean that it's never going to happen. You can always dip your toes back into it if you want to. Always do what feels right for you.

I’m self-employed already, what should I do to look after my finances?
  • Having a separate account for just your national insurance contributions and income tax. It separates out your “fun” and “necessary” money away from what you have to cough up when it’s due

  • Tracking how many hours you spend on projects and certain tasks. There are different tools you can use, like Toggl to do this. It might seem bizarre, but over time when you get into a niche, you’ll find that you can do that work in less time, and that means that if you’re in a good position to - you don’t need to accept lowball offers!

  • Don’t be scared to turn down paid projects if they don’t fit you. Here’s a good thread which explains why

  • Put this in your invoice if you’re worried about late payments:

“Thank you for your custom. Payment terms are 30 days. Please be aware that according to the Late Payment of Commercial Debts (Interest) Act 1998, freelancers are entitled to claim a £40.00 late fee upon non-payments of debts after those, at which point a new invoice will be submitted with the addition of this fee. If payment of the revised invoice is not received within a further 14 days, additional interest will be charged to the overdue account at a statutory rate of 8% plus Bank of England base of 0.5%, totalling 8.5%. Parties cannot contract out of the Act’s provisions.”

  • Browse IPSE If you would like advice on a range of topics like IR35, insurance etc

  • Nervous about your pensions when you’re self-employed? Here’s this handy Moneyhelper webpage

  • Leapers support the mental health of freelancers and the self-employed

  • Check out our handy resource on money and wellbeing where we talk about how to build healthier attitudes towards managing your money, and where to go if you need financial advice