Moving to the UK to work as a freelancer is an exciting prospect. The UK is a great option for anyone looking to freelance overseas, from the beautiful views of the countryside and sandy beaches to the great heritage of old buildings.
- UK freelancer
- Types of business structures for freelancers in the UK
- Become a freelancer in the UK
- Visa
- Registration for taxes
- Bank info
- insurance
- Pros and cons of running a UK freelance limited liability company
- Benefits of running a freelance limited liability company in the UK
- Tax and Social Security Contributions (NICs)
- Professional status and credibility
- Limited liability for the director
- Possibility to claim a larger cost range
- Ability to split business income
- Option to postpone some income in the future
- Disadvantages of running a freelance limited liability company in the UK
- Additional time and expense
- Increased responsibility
- Possible IR35 costs
- Benefits of running a freelance limited liability company in the UK
UK freelancer
The number of freelancers in the UK has grown significantly in recent years – thanks to the many advantages it has to offer. Freelancers are an integral part of the UK workforce and more and more people are considering the idea of freelancing there.
Freelancers are also moving to the UK because of them free quality health care and because if you can speak English you don’t have to learn a whole new language.
Types of business structures for freelancers in the UK
To start your freelance business in the UK you first need to have a knowledge of the different fields Business structures present there. This is because the structure you choose for your freelance business has a huge impact on the amount of taxes you pay.
There are essentially four main types of business structure in the UK:
- Company with limited liability
- Sole dealer
- partnership
- Limited partnership
Limited Liability Companies are companies that exist legally independently and where the liability assumed by the shareholders or members of the company is limited.
Sole dealer refers to businesses owned and run by the self-employed and is the easiest and cheapest form of business registration. Sole proprietorships are fully responsible for running their business and the related legal requirements.
partnership Businesses are two or more people who run a business together and share income. A partnership is not separate from its operators, and all partners are fully responsible for all debts owed by the company.
Limited Liability Partnership or LLPis similar to a partnership, but here the partners’ liability is limited to the amount of money they invest in the business. At least 2 partners are responsible for filing the annual financial statements.
The first structure – Company with limited liability – is what we want to focus on the most here probably the best kind of company for you to register your freelance business as. Note, however, that running a limited liability company, like any other structure, has its own advantages and disadvantages.
Become a freelancer in the UK
# 1 visa
There are two types of visa systems that allow you to enter the country and work as a freelancer:
- Tier 1 Entrepreneur Visa
- Tier 1 (exceptional talent) visa
Tier 1 Entrepreneur Visa is not purely self-employed, although it allows you to set up your own business in the UK. This is especially recommended if you are registering your UK freelance business as a limited company. Remember that at least you must have £ 50,000 in finance and a good level of English to obtain this visa.
The other option for you is that Tier 1 (exceptional talent) visa. This is a limited edition Visa that requires an extensive application process that shows your work as “of outstanding quality” and published internationally.
# 2 Registration for taxes
This is where the business structure you have chosen comes into play. Before you start freelancing in the UK you need to decide whether to work as a Sole proprietorship or limited liability company.
Once you have done this, you will need to register with Her Majesty’s HMRC (Revenue and Customs). This is an important and fairly easy step as you can manage most of it online. Remember you need one National Insurance Number (NI) before registration. You can apply here.
💡 For more information on taxes, please see this in-depth guide from Contractor Advice UK.
# 3 bank info
Opening a bank account in the UK is relatively easier today than it was a few years ago. All you need are two documents – one to prove yours identity and one that proves yours address.
Most banks accept your passport, driver’s license or ID card (for EU citizens) as proof of identity. A current electricity bill or a rental agreement is sufficient as proof of identity. Note that the requirements vary from bank to bank. It is therefore worth contacting various banks before deciding on one.
# 4 insurance
Health insurance is especially important if you are a freelancer. Fortunately, the UK offers free health insurance both its citizens and expats.
There are also many global health insurance options to choose from if you want to opt for private insurance instead.
Pros and cons of running a UK freelance limited liability company
Benefits of running a freelance limited liability company in the UK
There are many benefits to running a limited company, including:
# 1 tax and social security contributions (NICs)
As the manager of a limited liability company, the bulk of your income will come from Dividendsthat are subject to a different tax than a regular salary. NICs aren’t payable on dividends, which ultimately means you have more cash in your pocket.
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# 2 Professional status and credibility
Your freelance business reputation rises once you become a contractor and your clients potentially keep your business Appreciation go forward. Having your own business with a corporate image also makes your company more credible.
Being limited shows that you are serious about your career and see a future in your chosen field. For some clients, this may mean a higher level of confidence in you as a contractor, and you may be hired more often as a direct result.
# 3 Limited liability for the director
Since your limited liability company is a separate legal entity, you are protected by the following limited liability. This means that in the worst case scenario, if you have paid for stocks and given unsecured loans to the company, you will only have to be personally liable for your company’s debts.
# 4 Ability to claim a wider range of expenses
To be limited means you are entitled to do so claim more allowable business expenses. Since it is only deducted from your company’s profits (and you are only taxed on profits), so is your tax burden if profits are reduced.
# 5 Ability to share business income
If you have your own company, you have the option transferred some shares to your spouse or one of your family members. Dividends are then to be paid directly from the company’s bank account to the shareholders according to the share ratio.
# 6 Option to postpone some earnings in the future
If you work through your own business, it is your responsibility to decide what salary and dividends to pay and when to pay them. If you defer part of your income, you have the option to take it later when you may have worked just a little this year and your income is lower than usual.
The shift in your income is also far more than that tax efficient. If you get it all out at once, you’ll pay higher taxes than if you put it off.
Disadvantages of running a freelance limited liability company in the UK
Unfortunately, there are also some drawbacks that you need to consider before considering starting a limited liability company. These can be seen as follows:
# 1 Additional time and expense
Running your own limited company can result in spending a little more time on administrative tasks, and it can also be costly. For example, you will need to keep your own bookkeeping and will be responsible for submitting all documentation for the annual financial statements, proof of attestation, etc. Additional costs in the form of accounting fees can also be inevitable when running a limited liability company.
# 2 Increased responsibility
As a contractor for a limited liability company, you have greater responsibility than with a contract under one roof or as a sole proprietorship. It is up to you to ensure that you meet all of your director’s responsibilities.
From following company rules to informing shareholders to filing tax returns, as a director you have a number of responsibilities. Even if you hire someone to help you in the business, you still are legally responsible for your company’s records, changes, taxes, accounts and services.
# 3 Potential IR35 costs
IR35 refers to UK tax legislation aimed at combating tax avoidance by workers who work in the same way as full-time or part-time employees. Working with a limited liability company gives you some tax advantage. So the government introduced the IR35 to remove this benefit.
Providing UK professional services through your own business may result in IR35 legislation being applied to relevant work assignments. This is especially the case if you have not taken any action to comply with these rules. The financial cost at IR35 is considerably.
To sum up, if you only want to get a contract for a few months and then return to full-time employment, starting a limited liability company may not be the best step. This could prove more costly than beneficial.
Moving to the UK to work as a freelancer certainly sounds appealing. Would it be something you would consider? Tell us in the comments below!
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