OK. So you’ve decided to go freelance, or you’re refreshing your freelance services. If you are anything like me, the legal stuff is the last thing you are thinking about, and you might even be assuming that most of it doesn’t apply to your one woman or man band.
Unfortunately, that isn’t the case, and there are cases of people who work for themselves finding themselves on the wrong side of the law or getting sued, and ignorance is not a valid excuse.
In any case, good legal advice and structures can help you run a more profitable business, if that’s what you want. Especially when it comes to getting paid for all your hard work! So, we’ve prepared a bit of a checklist for you, and we’ll point you in the direction of some tools and resources that can help.
Here’s our handy checklist
1. Do I really need a contract? I know my client.
My #1 piece of advice based on bitter experience is to get yourself a contract before you start work. Even, maybe especially, if you are working for friends or family.
Many of your clients will ask you to sign a contract, and that’s good – but make sure you look it over thoroughly and that it works for you. Sometimes, you’ll find a schedule of deliverables attached to a standard contract. These will have been adapted for your work, and you need to be comfortable with them. Look out for those dreadful clauses that ask you to sign over everything. It’s OK to agree to this kind of thing, but you would want to be financially compensated for it.
Where there is an agreement for money to be paid and goods or services to be provided then there is very likely to be an enforceable contract whether its in writing or not. The advantage of writing is that the terms can be made clear up front and the parties can agree what is or isn’t implied into that contract. E-mail counts as writing. Always follow up conversations with an email so that you have that auditable trail, in case the relationship breaks down later and you end up somewhere like the small claims court.
2. What about paying tax?
The first thing to remember is that the tax man wants you to make money! That might sound a bit odd, and sometimes you will really wonder whether that’s really the case. But, the more successful you are, the more you contribute to paying off the country’s debts.
The first thing is to let them know that you are self employed. Unless you decide that you want to trade as a limited company. There’s some good advice on the HMRC website, and on the government website Gov.uk. if you haven’t decided yet, and there’s no substitute for getting yourself an accountant. Better still, use a good online accountancy system like Freeagent, which will calculate it all for you and even show you how much you owe.
I can’t pretend this is the most exciting part of freelancing, and it’s pretty daunting when you first set out. But once you’ve got the right structures and advice in place, you’ll be fine.
3. How should I structure my business?
You might not even think of yourself as a ‘business’ yet but if things take off and you start getting other freelancers in to help you grow your client portfolio, you might want to think about a different legal structure.
There are lots of different ways to structure your business legally alongside setting up a limited company if you decide against being a sole trader. You can opt for a company limited by guarantee, a limited liability partnership or even a social enterprise. The first place to go to find out more is the gov.uk website.
You might decide to keep things simple and class yourself as a sole trader. In this case, you will be paying tax via self assessment and you won’t have the administration involved with a limited company or similar. We’re not the experts in the pros and cons, but here’s a great article that outlines these to help you decide.
You should certainly take further advice around the structure you need from an accountant.
4. Do I need a separate business bank account?
That’s a very good question, and you are not legally required to do so.
But, in our experience, it’s wise to keep your business and personal banking separate, especially if you have to produce company accounts and pay corporation tax. Remember, money spent legitimately on the running of your business and the taxes due are not ‘your money’. It’ll also mean that you are sure how much you can pay yourself!
5. Do I need professional indemnity insurance?
The short answer is yes, but as a new small business, you are easy prey to the salesmen. Let’s just stick with the insurances that you definitely need.
Almost all businesses need Public Liability insurance, certainly if you work or interact with the public. But perhaps you are an online business, and if you sell products to the public online then you’ll need Product Liability insurance. Many freelancers provide advice, in which case you may also need Professional Indemnity insurance.
Only you can assess the relative value of the cost of insurance v. the risks involved. And we aren’t experts. But most of the main insurance companies will offer packages, saving you on buying these separately. Hiscox are specialists in business insurance, and have a great advice area too. But shop around! The comparison websites, like Moneysavingexpert.com will help you with this.
Don’t forget your car and home insurances too. There may be restrictions on those policies relating to your business activity.
6. How important is it to keep my receipts up to date?
Sorry. Back to taxes again. The taxman insists that you keep good records of income and expenditure from the date you start trading (and you must let them know when that is). To be honest, we are big advocates of online accounting software, like Freeagent, which is designed with the sole trader/freelancer in mind. You can even use mobile apps like receiptbank to keep those in place.
Good record keeping will also help you track the health of your business. Not to mention making your tax year end much easier to deal with.
7. How do I protect myself and my product?
Intellectual property can appear very daunting for the one woman or man band. Most clients want – or think they want – the rights to the intellectual property you produce for them, and most contracts address the subject of intellectual property ownership. Yet making sure that a client ‘owns’ the work product you produce can be a tricky subject.
The key is to know the difference between agreeing to offer your time for money (say, on a day rate) or whether you are handing over the product of your work.It’s really important that if you do decide to hand over the product that you sort out the recompense in advance. You should see a solicitor, but don’t hand over anything until you’ve been paid for it!
A good place to start, if you are in the UK is the Intellectual Property Office.
Don’t forget that we’ve partnered with Lawbite – who offer simple, affordable legal services and documents for freelancers and small businesses. It’s ever so easy. You can find out more on their website.