Tuesday, September 7, 2010

The Pros and Cons of Freelancing in the UK by Clive Goodhead

The recent UK recession has resulted in more and more people turning, either voluntarily or by necessity following redundancy, to freelancing. Not all business sectors use freelancers to the same extent, so if you are not a computer consultant, web designer, graphic designer, copywriter, illustrator, photographer or journalist you may find it quite hard to get work. However, the use of freelancers is becoming more common and, ironically, many people freelance for a former employer even after being made redundant.

Freelancing involves working under contract for a customer; you will either be self-employed or an employee of a service company. In legal, tax and practical terms, freelancing is very different from being an employee. In the UK, there is a mid-way category, the agency worker. Such workers gained rights similar to employees recently, but most true freelancers will not fall into this category.

There are pros and cons to being a freelancer; weighing the two against each other is difficult and the outcome varies from person to person.

The pros (advantages) of being a freelancer are: more money; flexibility; variety; less tax; and better "work-life balance".

Freelancers, in general, earn more than an employed person doing the same job. Of course, there are good reasons for this (see cons below) but it does mean that you do not have to work full-time.

As a freelancer, you can choose who you work for and frequently when, where and how you work. You have more control over your working life. However, when times are hard you may have to take whatever work and working conditions you can get. Of course, there is a limit to your flexibility - you will probably have to fit your holidays in between contracts.

Good freelancers can choose to work on a range of projects for a variety of customers, giving opportunities to utilise and build upon their skills.

The general perception is that UK self-employed people (including freelancers) pay less tax than employed people do. Although, this is largely true, there are legitimate reasons for it, including the fact that the tax rules for "deductable" expenses are more generous for the self-employed than for the employed.

However, "work-life balance" is frequently given as the most important advantage of being a freelancer. Many argue that in this day and age the freedom to distribute your time between work and leisure however you wish is priceless.

The cons (disadvantages) of being a freelancer are: lack of job security; continuous change; you have to run all aspects of your business; isolation; and new tax legislation.

Freelancers have very little job security. They are not guaranteed continuous work and do not receive benefits such as sick pay and maternity or paternity pay from their customers. Some state benefits may be receivable, however, if the freelancer is an employee of their own, or a shared, service company.

Freelancers may move from contract to contract frequently. Many find this quite disruptive. To be successful you need to be able to adapt to new situations rapidly.

Being a freelancer means setting up and running a business and all that that involves. There are a number of possible business structures in the UK that a freelancer might consider, including: sole trader, partnership, limited company, limited liability partnership (LLP) and umbrella company. The legislation that applies to the governance, statutory returns, tax rules, tax returns and financing differs for each structure and sound professional advice is essential.

If you work from your home as a freelancer, you have to work without the support of colleagues. You will not have access to, for example, the company library and technical department.

Recently, the UK tax authority, HM Revenue & Customs (HMRC), has attempted to clamp down on perceived abuses in the UK tax system. The self-employed, and particularly freelancers, have borne the brunt of this attack, witness the 'IR35' and 'Managed Service Companies' legislation and the 'Arctic Systems' case (that HMRC took all the way to the House of Lords, and lost). Further clampdowns are expected, despite the Government's promise to reduce "red tape" for business.

From the above, it may seem that the balance is tilted firmly in the direction of the 'cons'. However, you can outsource much of the legal, accounting, tax and administration to a management company or firm of accountants and you can even employ an agent to assist in your search for freelance work. If you do this, you will probably find that the decision is obvious to you; you are either a freelancer or you are not.

Copyright 2009-2010 Clive Goodhead

Clive Goodhead writes about various business and internet related subjects from his base in west Cornwall, United Kingdom.

Clive also manages 'Marazion Guide', your online guide to the ancient charter town of Marazion, situated on the shore of Mount's Bay in the far west of Cornwall in the United Kingdom. As well as being one of the most popular holiday destinations in the United Kingdom, Marazion is the "gateway" to the world famous St Michael's Mount. To read more about Cornwall and, in particular, Marazion and St. Michael's Mount visit Marazion Guide.