We have created this guide for professionals who intend to become freelance or are interested to know more about the commitments and processes involved in working on a contract basis. Many people now regard the ˜flexible work force" as the model for future employment. Companies increasingly seek to take on specialist skills when and where they are needed rather than invest in permanent staff. Combined with a growing skills shortage, this means freelance expertise is constantly in demand even during times of recession.So if you're looking to build on your experience, increase your income and grow a business of your own, freelancing is an attractive option as long as your agency gives you the correct support, guidance and encouragement. In short, you will get the best of both worlds - the freedom and opportunities of selfemployment, and many of the benefits you would expect to receive in a permanent role.

What Makes a Good Freelancer?

Before weighing the prospect of going it alone, consider carefully whether you have the attributes of a successful freelancer.

• Proven industry experience
• Marketable skills
• Ability to communicate well
• Good organisational skills
• Entrepreneurial streak
• Ability to keep calm under pressure
• Ability to fit in with different environments and cultures
• Flexibility

Whilst you may be attracted by the independence, challenge and potential rewards of working for yourself, you must be realistic about whether it will suit you.

What are the benefits of Freelancing?

The two main benefits of freelancing:
(1) A greater disposable income
That is, the amount of income that you have available after deducting taxes and National Insurance.
Freelancers have traditionally commanded attractive rates of pay as they provide a double benefit for the employer, who avoids most of the statutory payments
associated with permanent staff and gains a more flexible workforce. Several things will influence the amount you are paid:
Your skills and experience
The nature of work you are assigned to do
The assignment location
The duration of an assignment
Freelance staff can usually increase their pay above that of their PAYE counterparts
by setting up a limited company and can minimise taxation through effective financial
planning.

(2) Being your own boss
Few things can match the buzz of setting up your own company and becoming your own boss. You'll have greater freedom and flexibility, a wider variety of challenges, exposure to different organisational cultures, and the opportunity to learn new skills.
You will also be less affected by office politics and have more time to focus your efforts on mapping out the right career path for you.
This will enable you to undertake many different assignments which will create variety, challenges, let you experience different organisational cultures and help you learn new skills. In addition, you will be less affected by office politics and have more time to focus your efforts on mapping out the right career path for you.

Are there downsides to Freelancing?

Job Security
Lack of job security often concerns freelance professionals. While the potential increase in earnings is attractive, always bear in mind the risks “ particularly at the outset when you are forging relationships with agencies and clients.
Take this into account when assessing your potential first year's annual income. True, your daily earnings are likely to exceed what you would expect as a permanent employee: but you cannot assume that you will be working every week. Allow time off for slack periods and sickness by planning for a maximum 44-week working year.
Although it is difficult to predict employment and earnings beyond the first assignment, remember that many companies extend contracts beyond the initial
period. Your first assignment will also help to establish your credibility and effectiveness as a freelancer.

The career ladder
If you're looking for a conventional career ladder, freelancing may not be for you.
Freelancers sometimes fill leadership positions, but most have less responsibility than permanent staff.
However, freelancing is not an irreversible option. Many professionals switch back to permanent employment from time to time, particularly if an assignment or a company's culture proves to be especially attractive.
Nor should freelancing restrict your training opportunities. Exposure to different companies, projects and methodologies will boost your knowledge “ and employers will often send freelance staff on training courses whilst they are on assignment.

Working on your contract

Your Recruitment Consultant should be in contact with you and your client manager throughout the assignment and should try to see both parties at regular intervals.
In addition, agencies often organise hospitality events that give you and your colleagues the opportunity to meet socially outside the work place.
Your Recruitment Consultant knows that your job satisfaction and commitment is vital to the success of their client's project and will try hard to represent your interests.
Equally, take care to understand what the agency expects of you. They often have their own code of conduct for their freelance workers to protect the good name of the agency.

Selecting a Firm of Accountants

There are three ways to set yourself up as a freelancer. The options are via PAYE, an umbrella company or setting up as a limited company.

Limited

Setting up as a limited company is probably the best option if you plan to freelance for at least a year and anticipate earnings in excess of £25,000. It offers you the most flexibility in terms of tax and financial planning and a higher net income than other methods. Your pay is also likely to increase by an additional 10% which corresponds to the Employer's National Insurance saving that your agency will make in paying a limited company.
A drawback of a limited company is the need to keep records and abide by the legalisation laid down by the Inland Revenue, Customs and Excise and the Registrar of Companies. However, many accountants specialise in freelancers' accounts and will take on most of the administration work for a fixed annual fee.

Disclaimer
In April 2000, IR35 legislation came into effect - measures by the Inland Revenue to counter tax and National Insurance avoidance through one-man limited service companies. For further advice on the trading options available to freelancers in the light of this legislation, please consult the following websites:
Inland Revenue-guidelines & FAQs regarding IR35 - www.inlandrevenue.gov.uk/ir35/ Professional Contractors Group “advise for members" www.ir35update.co.uk

PAYE

The PAYE (Pay As You Earn) option is often chosen by contract staff who are unsure of how long they will be freelancing. It is open to anyone employed by an organisation or working directly through an employment agency. Your agency deducts both tax and National Insurance from your pay so you receive the net amount. You must keep all tax documents given to you by your agency and make sure that they issue you with a P45 tax certificate when you stop working for them and a P60 certificate at the end of the tax year.
PAYE provides none of the tax advantages of running your own business and - because your agency is required to make a separate employer's National Insurance contribution - you will generally be paid 10% less than your limited company counterparts. As you are not employed by the agency, you are not currently entitled to any legal protection against dismissal or redundancy. However, if you meet certain criteria you will qualify for paid holiday and you will retain social security benefits.

Selecting a Firm of Accountants

Although there are literally hundreds of accountants operating in the industry, it is best to opt for a specialist company, which just caters for the needs of the
freelancers.
Most specialist accountancy companies provide an integrated accountancy, tax and independent financial planning service for freelancers. Their aim is to help you run your venture as smoothly as possible and to maximise your income “ choosing the most appropriate method of trading, achieving tax efficiency, and freeing you to make the most of your disposable income.

Questions to ask
What are the set-up costs for a limited company?
What are your annual charges?
What will I get for my money?
What extras will I be charged for?
How quickly will my accounts be prepared?
Will you provide me with bookkeeping and administration software?
Will I be nominated a personal contact?
How quickly do you respond to requests?
Will I be expected to commit to additional financial packages as a condition of
using your services?

How to Form a Limited Company

You can buy an ˜off the shelf" company or ask for a ˜bespoke" company to be formed especially for you. ˜Off the shelf" companies - held by your accountant or solicitor - are already set up with their own name, company number, share structure and certificate of non-trading. Such companies can be purchased at a moment's notice and then tailored to your own specification.

Your Own Named Company

Subject to the availability of your chosen name at Companies House, a company can be created to your own requirements within about two weeks. You will then receive the following documentation:

Certificate of Incorporation
This states where and when the company was incorporated and its registered number. You will need to supply copies of the certificate to your bank manager,
employment agency etc as a proof of the company's identification.

Memorandum and Articles of Association
This is the constitution of the company and you will normally receive several copies.
It will set out the objects on which the company is formed, its powers on conducting its day to day business, and will indicate the capitalisation of the company and the original subscribers to the company.
Copies of the memorandum and articles are normally given to the company's bankers, the Inland Revenue, the auditors and requested by other individuals who
intend to invest in or finance the company, or rent premises to the company. It is advisable to have spare copies on hand at all times.
The following statutory matters will also need to be put in place:
Notification of a registered office - this will be the statutory address of the company and may be different from the company's trading address
Issue shares to shareholders
Appointment of directors“ your company must have at least one
Appointment of a company secretary “ if you have two directors, one can also hold this position. A company with only one director must appoint another person as their company secretary.
Inform the Registrar of Companies of the accounting reference date (this is the time when company intends to draw up its financial statements).

VAT
You should also seek advice at this time of the pros and cons of VAT registration. The current threshold for compulsory registration of VAT is £51,000 turnover per annum.

Opening a Bank Account
You will then need to open a separate company bank account, showing the bank your Certificate of Incorporation and a copy of the company's Memorandum and Articles of Association. All business income and expenditure must be recorded in and out of the company bank account. This will include all transactions with the exception of items that you pay for personally and those which you reclaim from the company via expenses.

Inland Revenue Registrations
The company must be registered as a taxpayer for the purposes of corporation tax. The company will be issued with its own tax reference number.
To obtain a PAYE scheme the company must be registered as an employer. A separate reference number and employer's pack will be issued from the employers unit. Also as a freelance worker you must be registered as an employee of the company.

Running the Company's Finances

As previously mentioned, it is advisable to appoint an accountant with a knowledge of the tax laws to prepare your accounts properly and tax efficiently. Trying to save on the comparatively small costs of an accountant's fees is a false economy when you consider the administrative obligations/deadlines and worry associated with lost papers and incomplete statements. To help keep track, your accountant will ask you to obtain and monitor the following documents:

• Your company and personal bank accounts
• Inland Review and Company House correspondence
• Proof of expenses i.e. receipts, bills and invoices

Your Agency and Your Limited Company
When your company enters into a contract with an agency they will need to record the following information before making payment to your company without any deductions:

• Certificate of Incorporation
• VAT registration documents
• Company bank account details

Protection at Work

Freelancers should consider taking out Professional Indemnity insurance which covers you if a client suffers a financial loss as a result of a mistake made by you.
Another insurance worth investigating is Public Liability insurance which will protect you against your legal liability for third party bodily injury. You are, however, legally required to take out Employers Liability insurance All these can be provided by giant, who have created a dedicated liability scheme
package that combines employer's liability, professional indemnity and public liability in a single policy.

Regulation Requirement of PIA
_ giant group plc provides independent financial advice through its subsidiary giant financial services limited which is regulated by the Personal Investment Authority
_ Past performance is not a guarantee of future investment returns. Fund values can rise as well as reduce
_ Levels and bases of, and relief from, taxation are subject to change

Conclusion

This guide has described the process of working on a freelance basis. There are obviously a number of issues that require more in-depth examination and for those seriously considering making such a move please call our office on 0207 917277 in order to discuss it further.