The Freelancing Diaries is a series documenting my venture into becoming a freelance writer. This is part two in the series. I am not offering advice, just sharing my personal experience. You can read part one here.
Since my last post, I’ve finished up at my old job and have been setting myself up to work for myself. I’ve bee researching, attending courses and getting everything ready for my kick off!
The last time I looked at how businesses operate was in GCSE Business Studies over 10 years ago! Thankfully, my time in tech has given me some decent googling skills to help me navigate this journey!
From the basic info on the government website (and my B in Business Studies), I know there are three main types of company in the UK. Sole Trader, Limited Company, or Partnership. As a one woman band, I’m nowhere near being considered a Partnership, so that left me two options.
Sole Trader or Limited Company?
As a one person company, setting up as a sole trader seems like the obvious and quite frankly the easiest option, but there are considerations including tax and liability that need to be assessed before diving in.
Sole Traders have unlimited liability on their company. What that means is, if my company were to go into debt, my personal assets and I wouldn’t be seen as a separate entity to my business. We would be one and the same. Whereas in a Limited Company, my personal assets couldn’t be counted as business collateral. If I went under, I’d only lose what I put into the business. This is important if I’m investing a lot of money and purchasing product to resell. On the other hand, it also means that as a sole trader, my business profits are mine personally, making accounting a little easier at the start. The money I make is mine. Since I am offering services only at the moment, the Sole Trader option seems a better fit in these terms.
Setting up a Limited Company comes with more paperwork, not just at the beginning but each year when individual tax returns need to be filed for both business and director. There are also added responsibilities in the form of the Directors Fiduciary Responsibilities. I’d likely have to hire an accountant and my finances would be publicly available in an annual return I’d need to file. Since I’m just starting out, I’m not sure I need the hassle of this just yet.
In terms of tax however, being a Limited Company makes much more fiscal sense. Rather than paying income tax on earnings, you’re paying corporation tax. On top of this, there are additional allowances and costs that are tax-deductible. These benefits can make the company more profitable. As it stands, this isn’t a concern for me until I start trading and figure out exactly what I will be earning.
So to sum up, a Sole Trader is the best option for me in spite of the tax implications, due to the lower paperwork and risk. In future, I can incorporate as a Limited Company but not before a time when the advantages outweigh the disadvantages!
When did I start trading?
Next, I need to figure out/decide when I started trading. I’ve been sending out pitches to magazines and websites casually for a while but I’ve not actually had any trade. Does that mean I still count as a trading business?
The short answer is yes.
Since I’ve been putting my name out and trying to get some work since December 2020, this means I started trading then. In business terms, you’re classed as trading when you’re actively seeking clients or work. I wasn’t aware of this at the time but thankfully, the implications of this are minimal for me.
As there was no income from this and it shouldn’t count towards my yearly allowance for that year. Though it does mean I will have to complete a tax return for the tax year 2020-2021.
Next was the website.
I’m familiar with WordPress having spent the last 4 years (wow!) on this blog, along with assisting other businesses with it in past jobs. So I purchased my domain name and got to work building.
I’ve spent some time (read: too much time) setting up and redoing my ‘business website’. On this site, I wanted to provide a platform to demonstrate my best work, as well as showing pricing and services for what I can offer.
As I have little experience in Travel Writing, I’ve been trying to diversify my niches to ensure I don’t pigeon hole myself too quickly. I’ve got experience writing CVs and press releases for friends as well as travel blog posts for myself and local magazines, so I wanted to get that out there.
The end result was a website that read more like a professional content writer instead of a Travel Writer. Although I liked the site, it wasn’t me and it wasn’t what I wanted my business to be.
I went through it taking the corporate edge off and I think I’m finally happy with it.
Your website is your brand and it represents you and your business. It is important it reflects you and your work accurately to attract the right kind of clients.
I will be forever tweaking it until I am sure it is the right fit for me, but in its current form, it is available here: www.megan-carmichael.com
Advice from others
Finally, the most important part of this is SPEAK TO OTHER PEOPLE!
It’s very likely you know someone in your life who has their own business or has some knowledge in the field. Speak to them as they have 100% been through the same thing and asked the same questions. If you don’t know anyone, reach out to forums or network in your new industry and ask advice there.
I’m quite lucky in that my dad is an accountant so I have a lot of free advice at my fingertips. Some of my closest friends run their own very successful businesses and I have them to lean on when I have questions about VAT or incorporation. Reach out to your network and ask the questions.
What was your experience setting up a business? Are you thinking of starting one soon? Let me know what you think or if there is anything you’d do different.
Next in the series: Accounting