There’s no doubt that being a successful freelancer comes with many benefits including having an abundance of freedom and the flexibility to work the hours that suit you, from any location.
Hand in hand with these benefits however come a range of risks and responsibilities, unique to freelancing. Many of which you may not have yet considered – from financial factors to contracts to upskilling.
Keep reading to make sure you’re aware of the risks you could face and the measures you should take to ensure the future of your freelance career. In any situation, prevention is better than cure.
Being completely self-reliant and wholly responsible for the income you generate each month can be a lot of pressure. If one day you decide you’re going freelance it’s a good idea not to put all your eggs in one basket, as it can be a risky business. In those first few years of starting out as a freelancer, keeping your previous job going part time can be a great option in helping to eliminate financial stress.
Building up a steady number of regular clients can take a while to achieve and require a great deal of marketing expense. As with any product or service you purchase, reputation of a brand plays a key part in the purchase making decision and the same applies to freelancers. A solid reputation and a bank of positive reviews can take a while to build and it’s this reputation that will win you clients. With that, having a regular part-time wage coming in until you have found your feet can be very useful in reducing financial stress.
Whether maths is your forte or not, working for yourself means you need to step into the shoes of a Finance Director from time to time. Just as a company works to keep their finances above water and in a cash positive position, it’s best for you as a freelancer to have a reserve of money set aside for emergencies.
If you’re off sick as a freelancer, there’s no sick pay (depending on what insurance you have). The same goes with holidays; you need to ensure you’re accumulating your holiday pay over time so that any time off you have balances itself out.
Try and aim to have at least one month’s wage saved in the bank ready for any emergencies that may crop up.
If a company you’re freelancing for decides to pay less than you agreed or changes the requirements of your projects, it can leave you in a vulnerable position. No matter how pleasant or trustworthy someone can initially appear, in business things can unexpectedly turn sour. Avoid terms being agreed on over the phone. Create yourself a contract template that you can easily modify and send this over for the client to sign before starting any work. Even written confirmation over email or text message can be legally binding so whatever you do, at least make sure you have some form of paper trail outlining the key points you and the client have agreed on.
Terms and conditions
Ask a solicitor to draft terms of business for you and include them with the contract you ask your client to sign.
If a client asks you to sign a contract, make sure you get it reviewed by an expert. Call 0333 321 1403 for details about our Contract Review service.
Before you take on any new client it’s good business sense to run a background check. This will reassure you that they are trustworthy and will help prevent you from potentially wasting time on unreliable people.
Remember that the price you are charging needs to cover holiday pay, sick pay, taxes and much more. This all needs to be calculated into your day rate, so make sure you’re not undervaluing yourself by undercharging.
Ask yourself – are prices in store going up? If they are, it’s a sign that it’s time to increase your rates. Inflation affects standard wages for employees, and you should make sure you’re making space for this in your own pay packet.
To determine what rate you should be charging, first work out what your ideal annual income would be. Take all of your personal outgoings such as rent and bills as well as business costs into account. Business costs to consider include software subscriptions, marketing costs such as website hosting, IT equipment, office space (if you’re not working from home), bookkeeping costs and insurance.
There are 253 working days in a year after bank holidays. If you take 25 annual leave days, that would leave 228 working days a year.
With your desired annual salary (which should factor in all the above) divide this by the number of days per year you’ll be working. Then divide this figure by the number of hours you’ll be working per day, to find your rate per hour.
Do bear in mind that people are paying for the value of your service, not your time, so while it’s helpful to have an idea of what you need to be charging as a minimum, don’t let this limit you. Having a set price for a job such as designing an event brochure, regardless of a specific time spent, can provide you with more earning potential.
Professional Indemnity Insurance
While a client can seem wonderful to work with at the start, sometimes demands can become unattainable and in the worst case, you can find yourself being held responsible for something going wrong, which as a consequence has caused a financial loss to a client. Even if you’re confident that you’re not responsible, a legal team and finances are going to be needed to defend your case. In these situations, costs can reach unattainable figures.
If you’re insured, your earnings will be protected from these types of costs and will arm you with legal support. Professional Indemnity Insurance, which provides this cover, can be bought from as little as £7 per month. Costs are dependent on your turnover, profession and level of cover.
Personal Accident & Sickness Insurance
When you have an accident and break a bone or an infection strikes you down, it can prevent you from working. With no company sick pay to fall back on, this can lead to a loss of income. That’s where Personal Accident and Sickness Insurance comes in useful. If you’re signed off work by a doctor, you’ll be entitled to a weekly benefit payable after seven days of illness. Personal Accident & Sickness Insurance will cover your loss of earnings and means you can focus on recovering instead of worrying about how you’ll manage with no income.
If your job requires going on business trips and regularly meeting up with clients, travel insurance is something to consider. At Caunce O’Hara we provide travel insurance that covers both you and your family for business and personal trips worldwide.
With criminals now using more advanced ways to defraud businesses, Commercial Crime insurance can be particularly valuable to businesses and individuals.
Imagine that you are contacted by your bank as they suspect some fraudulent activity on your account. They advise you to transfer your balance to a safe account and you do so, but it turns out it wasn’t actually your bank calling and was in fact a scam caller, causing you to lose your money. This would be a commercial crime case.
As would an instance where you are contacted by a fraudster claiming to be HMRC and unlawfully charge a fee over the phone or if you are sent new account details to pay an invoice, but it turns out the ‘new’ account details were sent by a swindler.
Unfortunately, it’s all too easy for anyone to fall victim of commercial crime, which is why it pays to be protected.
Tax Enquiry & Legal Expenses
Mistakes are easily made when filling out a tax return, but it isn’t as easy to clear up these mistakes once the deadline has passed. Tax enquiry and legal expenses insurance will protect you if ever you face legal charges or a loss of earnings as the result of a HMRC investigation, debt collection or even contract disputes. At Caunce O’Hara, with this type of insurance, we also offer a free 24/7 legal advice helpline, so you’ll always have help on hand.
If you haven’t familiarised yourself with IR35, it’s worth learning more about it. IR35 was designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company. If you fall within IR35, it could affect the way you work. You can learn more about IR35 here.
Business Combined Insurance
Having a bundle insurance package, which covers you for multiple things, can be more cost effective that paying for policies individually.
1. Employers Liability
If you hire anyone part or fulltime, whether that’s a PA, an intern or an assistant, legally you must have Employers Liability Insurance. This covers you for things such as injury caused to an employee while working for you.
2. General Contents
Whether you work in a co-working space or from home, General Contents insurance will cover your office equipment including computer, furniture and more from risks like theft or water damage.
3. Portable Equipment
When working away from home, for example from a client’s office, this type of insurance will protect the portable equipment you carry with you like your laptop, mobile phone and camera. If you’re a photographer or videographer travelling to different shoots and sets, this type of insurance is particularly helpful.
4. Public Liability
If you are working on site at a client’s premises and accidentally damage your client’s equipment or cause injury to a member of their staff, Public Liability insurance will protect you. It will also protect you in a situation where a client visits your office or work premises, even if that’s your home, and their property suffers damage, or they are injured.
6. Additional Cost of Working
This covers the cost of temporary hire for replacement equipment, following damage to any of your insured equipment.
Call 0333 321 1403 for details about our combined freelance insurance policies.
Remember to put money aside for your income tax and national insurance. You’ll need to pay income tax on anything over your personal tax allowance and allowable expenses as well as paying your National Insurance Contributions.
Make it easy for yourself by putting money aside each month into a savings account so that when it comes to paying your income tax, it won’t wipe you out. If you bank with Monzo you can use a ‘pot’ to put money aside each month, within your main account, rather than opening a new bank account. Many accounts also allow you to setup an e-savings account to run alongside your main current account.
Tax issues for freelancers can be especially complicated. Working with an accountant will make sure you’re doing things legally and are left with the maximum amount of profit.
Many new start-up businesses leave consulting an accountant until their first-year accounts need preparing for submission to HMRC. However, it’s a good idea to consult an accountant at the outset of your business as they can help you with the financial aspect of your business plan, which can include both short-term and long-term projections.
The time you’re spending on keeping your accounting records up-to-date could be put to better use on client projects. When you spend too much time on work you dislike (i.e. accounts), it can affect the work you love.
There’s a lot you can learn from an accountant, such as what qualifies as a business expense. Look for an accountant who specialises in freelancer and contractor accounts. It’s always easier to work with someone who is friendly and approachable too.
It’s better to be safe than sorry…
Working out which insurance policies are relevant to you can be difficult to get your head around. Call our friendly team on 0333 321 1403; they’ll be happy to help you with any insurance or IR35 queries.
For a quote for your freelance insurance, call our friendly team on 0333 321 1403 or click to build your quote online in minutes!