Questions about freelancing etc

charlie792

Apologies if this is in the wrong place I wasnt really sure where it would be most appropriate.

Basically my OH is a full time designer for a design firm, he is looking for freelance work to do in his spare time, in the hope that in the future he could start his own firm so wants to get his name out there now.
At present he has only been paid a modest amount for work done for his dad's company but has done other things free of charge just to build his portfolio. Obviously he's looking for more paying freelance work but Im wondering where he stands in regards to tax and things.
Does he need to register as a company or or as self employed etc to do freelance work, or does the fact he work full time anyway rule that out, and does the income need to be declared?

Also he has an exhibition of his work at a gallery in Jan and they've asked him to price it so it can be sold if people are interested in purchasing so Im not really sure where he stands in regards to making money from it (as per questions above)

He's been really lucky since graduating in May and has managed to get his work at the D&AD in London and featured on some pretty big sites so we're hoping his dream of his own firm will eventually take off but obviously in the meantime just need to know where we stand....

Sorry silly questions but just want to get it right in my mind.

anamenottaken

First of all he needs to check his contract with his current PAYE employer - to make sure there is no clause which says that work for others is not allowed or requires their permission.

If it is a matter of permission, he needs to work out how he approaches them about it.

To work as a freelancer means that he would be self-employed for the work he does that way and needs to contact HMRC to register. His PAYE employment would mean that his tax-free allowance would be dealt with that way and he would have to pay tax and NI on his profits from freelancing. But it is on his profits not his turnover.

charlie792

anamenottaken wrote: »

First of all he needs to check his contract with his current PAYE employer - to make sure there is no clause which says that work for others is not allowed or requires their permission.

If it is a matter of permission, he needs to work out how he approaches them about it.

To work as a freelancer means that he would be self-employed for the work he does that way and needs to contact HMRC to register. His PAYE employment would mean that his tax-free allowance would be dealt with that way and he would have to pay tax and NI on his profits from freelancing. But it is on his profits not his turnover.

Thanks for the reply - his contract only states he is not allowed to do any work for clients of the employer for up to a period of two years after leaving and that by undertaking any freelance work he agrees to do it in his free time and not during working hours...So from that respect everything should be fine.

Out of curiosity how does 'profit' work when providing a service compared to actual goods. I mean for example you could say he doesn't make any profit as he only charges his costs, ie his time? Not really sure how to explain what I mean there....

Also if registering as self employed does that count as running a business as our rental agreement technically says we can't use our flat for business purposes... It all seems so complicated

Hammyman

He does make profit - what he charges for his time. Profit works exactly the same - money charged minus his expenses. His "wage" is not a tax deductable expense unless he forms a Ltd Company but then he would be taxed on the wage he drew as well as the corporation tax from what was left so in effect no different.

So if you're self employed as a sole trader and you charge £30 per hour for the time and do 10 hrs, travelling 20 miles round trip to do the job:

Income (for time) £30x10=£300
Expenses 20 miles @ 40p per mile = £8.

Profit = £292.

And yes, either registering as self employed or setting up a Ltd company means you are running a business from home.

Honestly, if you're both having difficulty understanding the really basic concepts which such as the time he is charging for is actually profit then you need to speak to business link and an accountant before you go any further. BTW, if he has been doing work for his dads company on a self employed basis for 3 months or more, he is breaking the law by not registering as self employed within 3 months of commencement.

charlie792

Hammyman wrote: »

Honestly, if you're both having difficulty understanding the really basic concepts which such as the time he is charging for is actually profit then you need to speak to business link and an accountant before you go any further. BTW, if he has been doing work for his dads company on a self employed basis for 3 months or more, he is breaking the law by not registering as self employed within 3 months of commencement.

I was just trying to get my head around it - he's not looked into anything like this so I just thought Id investigate. To be honest Im tired and after a few drinks my head isnt functioning as best as it could be, as I said I didnt really explain what I was trying to get across very well but nevermind...
As for what he did for his dad, he did his dad's newsletter last year whilst he was still a student, and did a christmas card for him this year...all in all only about 4 days work.

anamenottaken

charlie792 wrote: »

As for what he did for his dad, he did his dad's newsletter last year whilst he was still a student, and did a christmas card for him this year...all in all only about 4 dayswork.

A small amount of time like that which wasn't meant to be ongoing means he wouldn't have needed to register as self-employed but he should have declared the income from the work he did.

It's also important to think about the value of the work as well as the time it takes. Will he be charging his clients on an hourly/daily basis or on a payment for the work output?

PlutoinCapricorn

Charlie, your post has raised several different issues. All have been covered many times in this and other sections, but it is the first time for you so it is all new, and possibly worrying and confusing. It is good that you are trying to find out what it all involves, and it is also good to get the information presented by different people in different ways. www.businesslink.gov.uk and the HMRC website are good places to start. It all gets a bit clearer once you think about the rationale behind some of the issues.

One issue is about running a 'business' from home. If someone registers as a sole trader as opposed to a limited company, the registered business address will not be publicly available, so only the clients would know about it. If the work involves sitting at a desk and going online, then this will not cause noise and inconvenience to the neighbours. Getting a lot of clients in - botox, hairdressing for example - is a very different matter, as is storing a lot of stock and converting a room into something like a photographic studio, which might involve paying business rates. Design sounds harmless, although if clients did visit it would involve getting Public Liability Insurance.

Another issue is the one about possible problems with an employer when taking on freelance work. Tiredness and distraction, conflict of interest by working for competitiors and using the main job's resources for the freelance work are problem areas. It is best to be open with the employer if possible: what employees do in their own time is their own affair, unless this affects their ability to do their main job and damages the company they work for.

The standard advice given to would-be freelancers is to start as a sole trader and create a limited company only if and when they earn enough to make this a good idea for tax reasons, unless there are good reasons to do it immediately. Design does not involve buying and selling so sole trader seems best. Registering is required once some actual work is started, not in advance as the 'business' might never get going. Sole traders can use their own names, which is the simplest option where administration and accounting are concerned, or a 'trading as' name, which might involve getting a separate bank account.

anamenottaken

PlutoinCapricorn wrote: »

Sole traders can use their own names, which is the simplest option where administration and accounting are concerned, or a 'trading as' name, which might involve getting a separate bank account.[/QUOTE]
I would suggest a separate bank account which is designated by the freelancer as being "for business activities" even if it is in fact a normal personal account. It can make tax returns/accounts easier to work through.

mumcoll

My son does this and he registered as self employed and got an accountant to sort what he owes HMRC. He pays his tax owed on his day job via PAYE.

aj76

I am going through the process right now of setting up my own company and as well as the sites already mentioned I found a lot of useful information on the UK contractors website, I also got a recommendation of an accounts firm to use called SJD Accountancy and theay had loads of info as well most available to view for free. If you know of anyone doing something similar then ask them who they use and for any recommended sites areas of research.

Best of luck with your OH's venture and dreams