Ready to go freelance and be your own boss? Before you jump into this, it's worth getting the foundations right. Being a freelancer means you are running a business, and even if you're working on your own from your kitchen table, there are a few key things to think about early on. Here's a guide to help you make informed decisions and be best prepared to comply with HMRC.
Choosing the right business structure
One of the first things you'll need to decide on is which legal structure is right for your business. There are a few options:
- Sole Trader: Simple to set up. However, you are personally liable for any business debts, and with Making Tax Digital (MTD) introducing quarterly reporting, the amount of paperwork will soon drastically increase.
- Limited Company (Ltd): A separate legal entity offering limited liability. This structure is often the most tax-efficient. Many freelancers find that going Ltd enhances their credibility, protects their personal assets, and opens the door to better financial planning.
- Partnership: Similar to a sole trader but run by two or more people. Each partner shares profits and responsibilities and is personally liable.
Our tip: If you're serious about freelancing for the long run, setting up a limited company is a smart move, and not as daunting or expensive as it sounds. We help freelancers form and run limited companies every day, and we can walk you through the whole process.
What taxes you can expect (and when)
Even running a small one-person business, there are a few taxes to be aware of:
- Income Tax: You'll pay this on your profits (after expenses). As a sole trader, this is done via the annual Self Assessment tax return.
- Class 2 & 4 National Insurance: Also collected via Self Assessment for sole traders.
- Corporation Tax: If you're operating through a limited company, you'll pay this on company profits.
- Dividend Tax: If you draw dividends from your limited company.
- VAT: You must register for VAT if your turnover exceeds £90,000 (2024/25 threshold), but voluntary registration can also be beneficial in some cases.
Tax deadlines:
- 31 January: Deadline to file and pay tax via Self Assessment
- 9 months and 1 day after your company year-end: Corporation tax due (if Ltd)
- Quarterly: VAT returns (if registered)
To watch out for: Quarterly Digital Reports
From April 2026, most sole traders and landlords with turnover over £50,000 must follow Making Tax Digital (MTD) for Income Tax. That means:
- Keeping digital records
- Submitting quarterly updates to HMRC
- Using compatible accounting software
And from April 2027, the threshold lowers to £30,000.
This is a major change from the current once-a-year Self Assessment. For many, the admin involved with being a sole trader is about to get more complex and that's why many freelancers are looking to incorporate now. For further information on Making Tax Digital read our blog.
Keeping on top of your bookkeeping
Good bookkeeping helps you stay organised, plan ahead, and avoid last-minute panic at tax time. Here are some best practices:
- Open a dedicated business bank account.
- Use reliable cloud accounting software (we support Xero, QuickBooks, FreeAgent – and can offer discounted subscriptions).
- Set time aside each month to review your figures and expenses.
We offer cost-effective bookkeeping and support packages tailored for freelancers, so you can spend more time earning and less time on the numbers.
When is an accountant right for you?
Ideally, having an accountant from the very start makes the running of a business much smoother. We can help get your structure right, explain what you can (and can't) claim, stay ahead of deadlines and avoid costly mistakes.
You might think accountants are only for larger companies, but that couldn't be further from the truth. We work with many freelancers and small businesses, offering:
- Affordable monthly packages
- Incorporation and tax setup
- Software support and training
- Year-end accounts, tax returns, and ongoing advice
Often, the tax we save you more than covers the cost of our services. And we'll always be upfront and flexible with our fees.
Get in touch today
Whether you're just starting out or a few years into your business venture, it's never too early, or too late, to get help. Get in touch with us, tell us about your business, and we'll let you know how we can support you and what kind of service would suit your needs best.