Get Started as a Legitimate Freelancer in the UK: A Guide to Registering Your Business

Ioana Cretu -

As the freelance economy continues to grow, more and more individuals are opting to start their own freelance businesses. While freelancing offers flexibility and the ability to work on your own terms, it can also pose some unique challenges, such as ensuring that your business is legitimate and compliant with relevant laws and regulations. In this article, we will explore some of the key steps that freelancers can take to establish a legitimate business, including registering your business, obtaining necessary licenses and permits, and ensuring compliance with tax laws.

Choosing to register as: Sole trader

Becoming a freelancer and working for yourself can be a rewarding and exciting career move. In the UK, one of the most common ways to operate as a freelancer is to register as a sole trader.

The legislation that governs the registration process for freelancers as sole traders in the UK is the Income Tax (Trading and Other Income) Act 2005. This act outlines the legal requirements and procedures for registering as a self-employed individual, reporting income, and fulfilling tax obligations.

Under the act, anyone who is self-employed must register with HM Revenue and Customs (HMRC) and complete a self-assessment tax return each year. This applies to sole traders, freelancers, and other self-employed individuals.

The act also sets out the tax obligations of self-employed individuals. Self-employed individuals are required to pay income tax on their profits, which are calculated as revenue minus allowable expenses.

Here are the steps you need to take to register as a sole trader in the UK.

I. Choose a Business Name. Before you can register as a sole trader, you need to choose a business name. This name can be your own name or something more creative. Just ensure that it's not already taken by someone else.

II. Register for Self-Assessment. As a sole trader, you are required to register for self-assessment with HM Revenue & Customs (HMRC). Self-assessment is a way of reporting your income and expenses to HMRC, so they can calculate how much tax you owe.

III. Choose an Accounting Method. As a sole trader, you can choose between two accounting methods: cash basis and traditional accounting. Cash basis means you only pay tax on the money you've received, whereas traditional accounting requires you to account for money you're owed as well as money you've received.

IV. Register for National Insurance. National Insurance (NI) is a tax on earnings that helps fund the UK's social security system. As a self-employed individual, you will need to register for Class 2 National Insurance contributions. You may also need to pay Class 4 contributions, depending on your income.

V. Open a Business Bank Account. It's a good idea to open a separate bank account for your business. This will make it easier to keep track of your income and expenses, and ensure that you don't accidentally mix your personal and business finances.

VI. Keep Records. As a sole trader, you are required to keep records of your income and expenses for at least five years. You will need these records to complete your tax return each year. It's a good idea to keep these records organized and up-to-date throughout the year to avoid any last-minute stress.

VII. Complete Your Tax Return. Each year, you will need to complete a self-assessment tax return to report your income and expenses to HMRC. The deadline for online tax returns is 31st January, and the deadline for paper tax returns is 31st October.

Registering as a sole trader in the UK is a straightforward process, and can be completed online via the HMRC website. By following the above steps, you can ensure that you're legally compliant and ready to start your freelancing journey. Here is a guide from HMRC to support you understand the registration steps for Sole trader: https://www.gov.uk/set-up-sole-trader.

In addition to the Income Tax (Trading and Other Income) Act 2005, there are other laws and regulations that may apply to self-employed individuals depending on the nature of their business. For example, if a freelancer provides services in a regulated industry such as finance or law, they may be subject to additional rules and regulations.

Source: https://www.gov.uk/employment-status/selfemployed-contractor

Choosing to register as: Limited Liability Company (LLC)

Another option is to register as a Limited Liability Company (LLC). Here's what you need to know about registering as a freelancer in the UK as an LLC.

In the UK, the law that regulates the registration of a Limited Liability Company (LLC) is the Companies Act 2006. The act sets out the legal requirements for forming a company, the obligations of its directors and shareholders, and the rules governing its operation.

To register as an LLC in the UK, the following steps must be taken:

I. Choose a company name: The first step is to choose a name for the LLC. The name must not be identical or too similar to an existing company name, and it must not be offensive.

II. Register the company: The next step is to register the LLC with Companies House. This can be done online or by post. The registration process involves providing details about the company, such as its name, registered address, the names of its directors and shareholders, and the share structure.

III. Draft the company's articles of association: The articles of association are the rules that govern how the company will operate. They outline the rights and responsibilities of the directors and shareholders and set out the procedures for making decisions.

IV. Issue shares: The LLC must issue shares to its shareholders. This involves deciding on the number of shares to be issued, their value, and the rights attached to them.

V. Register for corporation tax: Once the LLC is registered, it must register for corporation tax with HM Revenue and Customs (HMRC). This can be done online or by post. Corporation Tax is a tax on the profits of your company, and the current rate is 19%.

VI. Register for VAT: If the LLC's annual turnover is above a certain threshold, it must register for Value Added Tax (VAT) with HMRC. VAT is a tax on the value added to goods and services, and the current standard rate is 20%. You will need to charge VAT on your sales and pay VAT on your purchases. The current threshold is £85,000.

VII. Set up a business bank account: The LLC must set up a separate business bank account to keep its finances separate from the personal finances of its directors and shareholders.

Depending on the nature of your business, you may need to obtain certain licenses and permits. For example, if you're a freelance accountant, you'll need to be registered with a professional body like the Institute of Chartered Accountants.

In addition to the above steps, the LLC must also comply with other legal requirements, such as keeping accurate records (this includes keeping records of sales and expenses, issuing invoices, and keeping receipts), filing annual accounts and returns with Companies House, and maintaining a registered office address.

By following these steps, you can register your LLC and start working as a freelancer in the UK. While the process can be complicated, it's important to take the time to ensure you're setting up your business correctly. If you're unsure about any of the steps, it's always a good idea to seek professional advice from a lawyer or accountant.

In conclusion, registering as a freelancer in the UK as an LLC has several benefits, including limited liability and a professional image. However, it also involves more administrative and legal requirements than registering as a sole trader. It's important to consider the pros and cons of each structure and choose the one that's right for you and your business.

Choosing to register as: General partnership

The law that regulates registering as a freelancer in the UK as a general partnership is the Partnership Act 1890. This law outlines the legal framework for partnerships in the UK, including general partnerships.

Under the Partnership Act 1890, a general partnership is defined as a business relationship where two or more people carry on a business with a view to making a profit. This type of partnership is not a separate legal entity from its partners, meaning that each partner is personally responsible for the debts and liabilities of the partnership.

When registering as a freelancer in the UK as a general partnership, there are a number of legal requirements that must be met under the Partnership Act 1890. These include:

I. Choosing a partnership name: The partnership name must not be the same as any other registered business in the UK. It is also important to ensure that the chosen name does not infringe on any trademarks.

II. Creating a partnership agreement: Although not a legal requirement, creating a partnership agreement is strongly recommended. This document outlines the rights and responsibilities of each partner, as well as how profits and losses will be divided.

III. Registering for self-assessment: Once you've chosen a name for your partnership and determined your partners and their roles, you'll need to register your partnership with HMRC. You can do this online or by mail using form SA400. As a general partnership, each partner must register for self-assessment with HM Revenue & Customs (HMRC) and submit annual tax returns.

IV. Open a Business Bank Account: To keep your personal finances separate from your partnership finances, you'll need to open a business bank account in the name of your partnership

V. Registering for VAT (If Applicable): If the partnership’s turnover is over £85,000 per year, it must register for Value Added Tax (VAT) with HMRC.

VI. Obtaining any necessary licenses and permits: Depending on the nature of the business, the partnership may need to obtain licenses and permits from local or national authorities.

By following these steps, you can register your general partnership as a freelancer in the UK and start pooling resources and sharing profits with your partners. Remember to keep accurate records of your business finances and report your earnings to HMRC on time.

In conclusion, registering as a freelancer in the UK as a general partnership can be a good option if you are starting your business with one or more partners. However, it is important to understand the legal implications and responsibilities of a general partnership before making a decision. Working with a legal professional or accountant can be helpful in ensuring that your partnership is set up correctly and in compliance with all legal requirements.

Choosing to register as: Limited Liability Partnerships (LLP)

In the UK, the law that regulates the registration of Limited Liability Partnerships (LLP) is the Limited Liability Partnerships Act 2000. The act outlines the legal framework for the formation, management, and dissolution of LLPs in the UK. It sets out the requirements for registration, the rights and duties of partners, and the liability of partners in the business.

Under the act, an LLP must have at least two designated members who are responsible for filing annual accounts and returns with Companies House, ensuring compliance with the law, and handling any legal disputes. The act also requires that all LLPs must have a registered office address in the UK and must register for VAT if their turnover exceeds the threshold set by HM Revenue & Customs.

This article will guide you through all the steps you need to take to register as a freelancer in the UK as an LLP:

I. Choose a name for your LLP. Before registering your LLP, you need to choose a unique name for your business. The name cannot be the same as any existing business in the UK. You can check the availability of the name you have chosen by searching the Companies House website.

II. Register your LLP with Companies House. The next step is to register your LLP with Companies House. You can register online or by post. The registration process requires you to provide the following information:

  • The name and address of your LLP
  • The names and addresses of all partners in the LLP
  • A statement of compliance, confirming that all legal requirements have been met
  • You will also need to pay a registration fee.

III. Draft a partnership agreement. An LLP is a partnership, and as such, it requires a partnership agreement. This agreement sets out the rules and regulations that govern your LLP. It covers issues such as the division of profits, decision-making processes, and how to handle disputes between partners. You can draft your partnership agreement yourself or use a solicitor to help you.

IV. Register for taxes. Once your LLP is registered with Companies House, you will need to register for taxes with HM Revenue & Customs (HMRC). This registration will allow you to pay income tax and National Insurance contributions. You will also need to register for Value Added Tax (VAT) if your annual turnover exceeds a certain threshold.

V. Open a bank account. To operate your LLP, you will need a business bank account. You can open a business bank account with most high street banks. To open the account, you will need to provide your LLP’s registration documents, your partnership agreement, and identification documents for all partners.

LLPs must also comply with other relevant laws and regulations, including the Companies Act 2006, the Insolvency Act 1986, and the Equality Act 2010. These laws govern areas such as financial reporting, taxation, insolvency, and discrimination.

It is important for those registering as a freelancer in the UK as an LLP to understand the legal requirements and obligations that come with forming and running an LLP. Seeking the advice of legal and financial professionals can help ensure compliance with all applicable laws and regulations and protect the interests of the business and its partners.

In conclusion, registering as a freelancer in the UK as an LLP can be a suitable option for those looking for limited liability and flexibility in their business structure. However, it is important to consider the administrative and financial requirements of an LLP before deciding if it is the right structure for you. As with any significant business decision, it may be helpful to seek professional advice to ensure you fully understand the implications of your choice.

Here are some laws and regulation that you need to be familiar with as a freelancer in UK:

  • Self-Employment (Income Tax) Act 2015: This act provides the legal framework for the taxation of self-employed individuals in the UK, including sole traders.
  • The Companies Act 2006: This act outlines the rules for forming and running a company in the UK, including sole trader businesses.
  • The Business Names Act 1985: This act governs the use of business names in the UK and requires that sole traders register their business name with the appropriate authority.
  • The Value Added Tax Act 1994: This act sets out the rules for registering for VAT in the UK, which is mandatory for businesses that have a turnover of over £85,000 per year.
  • The Data Protection Act 2018: This act outlines the rules for handling and protecting personal data, which is important for businesses that handle customer data.
  • The General Data Protection Regulation (GDPR): This is an EU regulation that sets out the rules for data protection and privacy, which apply to all businesses that handle the personal data of EU citizens.
  • The National Minimum Wage Act 1998: This act sets out the rules for paying employees and workers in the UK, including freelancers who may be considered workers for the purposes of this act.

It is important for freelancers in the UK to familiarize themselves with these laws and regulations to ensure that they are operating their businesses in compliance with the law.