Naturally working in recruitment, we chat with a lot of people who’re looking for change in their life and want to do something new. One of the most common changes candidates think about is handing in their notice and going freelance but are unsure on how to make it a reality.
We thought we’d share our wisdom and outline some of the key steps, pros & cons, and things that might be worth thinking about before becoming your own boss.
Limited Company Vs Umbrella Company
If you choose to open a limited company you’re responsible for all the management for the company, that means dreaded tax returns, invoicing and all the administration that comes with owning a company. However, you won’t be paying fees towards umbrella companies so can protect your earnings in the long run.
There are a variety of Umbrella companies available, who offer differing levels of service so it's worth researching them to find the company & right package for you. Umbrella companies look after your invoicing and ensure you get paid on time - you just need to submit your timesheets. Some also have tools which allow you to check the IR35 status of contracts, added contractor insurance and even help you apply for mortgages.
All this does come at a price however, on average they will charge £25 per week for using the service.
Equipment & Insurance
It’s becoming increasingly common for clients to ask freelancers to use their own equipment, so we’d suggest getting both Mac and Windows as each company operates in a different way. The worst-case scenario is that you’re unable to take a contract because you don’t have the right kit.
Also, you need to get some insurance to cover your kit, as well as insurance which covers the work you do for clients. We would suggest looking into business content insurance and professional indemnity insurance as a minimum.
IR35 has been around for a number of years, but a few high-profile public-sector rulings has caused a bit of a stir within the digital marketplace. As a recruitment business we don’t claim to know all the Ins and Outs of IR35, but we know enough to understand the practical implications for contractors.
If a contract is ruled to be INSIDE IR35 then the contractor will be taxed in a similar way to that of a permanent employee. If you use an Umbrella company you will be taxed at source, if you use at LTD company you will have to work this out in your tax return.
If a contract is ruled to be OUTSIDE IR35 you as a contractor are deemed to be a genuine business providing services to the client and therefore IR35 will not apply to you.
It is the client’s job to do an assessment and tell you if the contract is inside or outside IR35 so nothing to worry about there. As a rule of thumb within the digital market we are finding more contracts fall outside IR35, this is due to the niche skillsets of contractors.
Once you’ve gone through the above you should have all the tools to go freelance, so now let's looks at some of the pros and cons of being a freelancer.
You have the freedom to work with the agencies and brands that you want to, which can give a CV a real depth of experience and allow you to explore your interests.
Financially it can be very lucrative especially if you manage to move from contract to contract with no gaps in employment.
Try before you buy. You can work for a company on a freelance basis risk free and without being tied into a long term or perm contract. If it doesn’t work out or you don’t enjoy it then it's not the end of the world.
Being your own boss offers unlimited flexibility, you can choose when you go on holiday and how often you take time off. You can also find part time contracts which could give you time to study/upskill or whatever other ventures you have going.
Working at a variety of companies gives you the chance to build an amazing network & black book of talent which you can use in other contracts.
If freelancing isn’t for you then you can always go back into a perm position. It’s a lot easier to go from freelance to perm than vice versa.
The most obvious downside is that you have no guaranteed work, contract lengths on average in the digital market last 3 months. You can never feel too comfortable and need to be prepared for some time without earning.
If your clients’ budgets take a hit then the first people to be let go are the freelancers, so some contracts may finish early.
You won’t receive any sick or holiday pay and you won’t qualify for any perks which are normally associated with permanent employment.
It can sometimes be hard to integrate with a company and become part of the company culture.
You don’t get much oversight into overall company strategy or really get the opportunity to make change within a company. On most occasions you are brought in to do a specific job and that’s it.
Hopefully after reading through this article, it’s given you a good idea of the steps needed to become a freelancer, and what life is generally like for contractors. It really can be an amazing step which gives a wealth of experience, but it’s safe to say that the freelance lifestyle isn’t for everyone!