Freelancer Startup Guide

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FREELANCER’S GUIDE  A business handbook for successful freelancing

Transcript of Freelancer Startup Guide

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FREELANCER’S GUIDE A business handbook for successful freelancing

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Contents 

Contents  SUCESSFUL FREELANCING  Business location and start up 1

   Application basics - Funding 2

  Savings & pension planning 3

BUSINESS STRUCTURE 

The sole trader 4

  Partnership 4

  Limited companies 5

  Social enterprise 6

  Status 7

RECORD KEEPING  Bookkeeping 8

Bank and cash records 9 

Pricing and prot 10 

Credit Control 11

TAX & COMPLIANCE 

Tax & compliance 12 

National Insurance 12

  Tax deductions & claims 12 

 VAT 13

LEGAL ISSUES  Law of contract 14 

Intellectual property 14

INSURANCE  Liability insurance 15 

General & commercial insurance 15

PLANNING  Business plan 16 

SWOT 16  Strategies 16 

Cash budgets 17 

T i m e m a n a g e m e n t 17

MARKETING 19

APPENDIX 1  Tax rates 21

APPENDIX 2  Glossary of terms 22

APPENDIX 3  Useful contacts 23

Introduction  A great number of individuals are thinking of or have become freelancers, either by accident or design, for most this proves to be a life changing event There are anumber of highs and lows to being a freelancer, the positive aspects include exibility 

over working hours; greater variety of work; increased job satisfaction & work challenges; autonomy and independence; improved work/life balance and increasedearning power The negative aspects of freelancing include no guarantee of work or 

income; greater degree of isolation and less human contact; increase in nancial risksand exposure; increase in stress; and heavier workloads

 A freelancer’s life can be quite lonely and their experiences are akin to experiencing aroller coaster ride; for example busy work periods followed by quiet periods and feel-ings of optimism followed by ones of pessimism Fortunately these days there are agreater number of support agencies that can provide aid and assistance to prospective

and current freelancers – either free or at affordable rates – some of these agenciesare quoted in the back of the guide

This pocket guide is based on Pro Active Resolutions extensive experience of the cre-ative and business sector, and has been written for prospective and actual freelancers

The guide also contains extracts from articles that have been previously published in Arts Professional, the original articles being found at www.proactiveresolutions.com

The idea behind the guide is to provide an overview and an awareness of the major issues that a freelancer is likely to face, and thus supplement and support existingresources We would like to thank Creative Leicestershire for reviewing the guide;contributing to the marketing section and the production of the guide However, allerrors and mistakes that slipped the proof reading net are Pro Active Resolutions

If you have any suggestions, comments or corrections, then please contact us via our  website at www.proactiveresolutions.comor by e-mail [email protected]. All comments will be gratefully received, and where appropriate incorporated into subsequent editions

 We would like to thank you for taking a copy of the guide and we hope that it provesto be a valuable resource in your profession

Happy and successful Freelancing

Mahmood RezaPro Active Resolutions

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Successful Freelancing Some of the common mistakes that freelancers make when starting up include:

  Unrealistic expectations of what you can achieve

Poor market research   Weak nancial planning Failing to seek professional advice

  Poor balance between time spent on artistic production and marketing/salesgeneration

  Over-investing in equipment – unnecessarily tying up capital Overheads e.g. workspace/ofce too expensive

  Poor credit control – not getting paid on time

The guide will hope to address some of these issues

  BUSINESS LOCATION AND START UP

Choose the right premisesChoosing the right premises is a key business decision You want premises that help you operate effectively without excessive costs At the same time, you want to avoid

being tied to premises that might not suit you in the future

Different options suit different freelancers Working from home is a good optionif all you need is a small ofce space. You can also rent premises or buy a property outright The rental or lease agreement will contain the rights and obligations of thelandlord and tenant, once signed this will be a legally binding document with thetenant being (normally) personally bound We recommend that suitable professional

advice, such as from a solicitor, is taken in the interpretation of the enclosed clauses

Working rom home You may have to pay business rates to your local authority on the part of your housethat you use for work and pay council tax on the rest of the property

The decision to charge will depend on the degree of commercial use For example,operating a business from a desk in your bedroom will not incur business rates, as the

main use of the room would still be domestic

Choose the right fnance when starting upEvery new business needs money when starting up For the majority of freelancers,equipment will need to be bought, the workplace established and marketing costsmet - all before the first sale is made Then once you’re trading, you’ll need cash topay the bills and keep the business going

There is a range of nancing options. Choosing the right ones for your needs isessential You can use your own money, borrow from banks, family and friends or 

attract outside investors Grants and government support may also be availableMost freelancers use a combination of these, tailored to their specic needs and

circumstances

It is now possible for freelancers to apply for government support via the tax credits scheme,the main qualifying criteria is to be a working individual and over 25 if there are no children – 

for further details see www.hmrc.gov.uk ; www.proactiveresolutions.com

  APPLICATION BASICS - FUNDING

 A common source of funds for freelancers in the creative sector is through “public”funding such as local authorities, trusts and foundations, and the Arts Council Itis important that applicants adhere to any specic application guidelines that arestipulated by the funders There are some general considerations, we have outlinedthese below:

 Your Selling Points A few key reasons why the work you are doing is important and why donors will wantto support you Remember there is a massive difference in saying what you are doingand stressing why it is important and worth supporting

Facts and fgures about your work Research, statistics and gures, which will help, demonstrate the importance of your cause, the extent of the need, the value of your work and the success of your methods you are using to carry out the project

The credibility o your organisationEndorsements and statements from other people will enhance the importance of  your work and what you are trying to achieve They should give the donor increased

condence in your ability to deliver the work you are promising to do.

 A plan & budget or your project You need to be clear what you intend to do, how and when you intend to do it and what the benets will be. These can be written up into a simple project plan. You can

put them together as a nancial plan for what you propose, properly and fully costedand covering all the items of expenditure you plan to incur It should also include any income you plan to generate from the project

Donor researchFind out what the funder is interested in and the scale of support you might expect if  your application succeeds (ie what to ask for) and identify any connections between you and the funder such as personal contacts or previous approaches for support

Back-up literatureHave brochures, annual reports, quotes sheets and other good information availableto attach to your written proposal These will enhance your case and improve your chances of success

Successful Freelancing  

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Say ‘Thank You’ If you succeed in getting a grant note any restrictions or obligations on your part and

make sure you comply with these Say ‘thank you’ immediately

Keep in touchMaintain contact with those who are supporting you (obviously), but liaise with those

 who are not (whether you feel they are or should be interested in your work) Reporton your successes and continue to build your credibility with them

Go back  Ask those who have supported you for further support next year or the year afterRemember they have already demonstrated that they like you and what you aredoing Go back to those who have turned you down if you think that they should beinterested Persistence can really pay Note any reasons given for rejection It may be worth nding out if there is a chance for reapplying and trying to x up a meeting todiscuss your proposals further

  SAVINGS AND PENSION PLANNING

SavingsFreelancers do not normally have a nancial safety net, no work normally equates with noincome It is important that freelancers save and put money aside, this will serve a number 

of purposes, (a) funds available to pay for tax and other liabilities; (b) nancial safety net if there is no work; (c) enables the freelancer to take time off for holidays (recommended)

Pension planning or the sel-employed A pension gives you a retirement income, paid for by investments built up during your  working life The State Pension is funded by your National Insurance contributions but only provides a basic income You may need an additional pension to retire comfortably

 As a self-employed person, you cannot join an employer’s pension scheme and donot qualify for the additional State Pension However, you can take out another typeof private pension such as a personal pension or a stakeholder pension The amount you get at retirement depends upon how much money has been paid in, how well

it has been invested and the age at which you retire. Independent nancial advice iscritical in this area, and any area of nancial planning.

Exit strategy When you’re setting up your business it’s essential to think about how you’llultimately end your involvement with it A well thought-out exit strategy can help youto maximise the value you get from your business, successfully market your businessto potential buyers or investors and ensure you end your involvement with as littledisruption to the business as possible

Regardless of whether your exit occurs to a planned schedule or you are forced tomake a move for unexpected reasons, the decisions you make when setting up canaffect how easy it is for you to eventually exit your business

Business Structure Running a business is not just about working in a different way, the freelancer hasto decide the form that the business will take The choice of business structure willdepend on the type of business, any inherent risks, industry stipulations and personal

preferences The structure you select will affect:

  The records and accounts you have to keep

   Your nancial liability  The tax and national insurance that you pay 

  How your business can raise money   Management structure and how decisions are made

The main forms are:

THE SOLE TRADER

In legal terms, the sole trader operates as an individual. Business nances cannot beseparated from personal nances insofar as the sole trader carries unlimited liability and is personally responsible for obligations incurred

 A sole trader is the most basic business form of self-employment with no start-up costs

 A sole trader is taxed as a self-employed person and can claim business expensesagainst prots. They are personally liable for any debts that the business incurs.

 AdvantagesThe advantages of being a sole trader lie in the self-sufciency and independence of the person being able to do their own thing, and there is little or no regulation

DisadvantagesThere are several disadvantages of operating as a sole trader The person cannotspread risk very easily without taking more owners on board One source estimatesthat about 75% of small freelancers cease trading in the rst four years.

PARTNERSHIP

This is where two or more people run the business and share the risks, costs, protsand decision-making on an agreed basis Each partner is self-employed and personally responsible for all debts run up by the partnership as a whole A written partnershipagreement is highly recommended

 A partnership is in many ways an extension of the sole trader in that the individualpartner’s business affairs are indistinguishable from their personal nances. They 

reap all the prots, divided according to agreed criteria (ideally set down in thepartnership agreement) and carry full personal liability If the business fails, there is adirect personal impact on the nances of the individual partner.

Business Structure  

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 Advantages 

The partnership enables individuals to spread risks in several ways Decisions can be

taken with the benet of input from at least two persons, enabling a broader perspec-tive to be taken of the issues concerned. The business can fall back on the nancialresources of more people, and there is also the possibility of tapping more sourcesof capital Bigger, established partnerships may be able to attract venture capital, not

normally available to a sole trader Most partnerships have a greater level of skills andabilities not available to sole traders There is also less likelihood of business failuredue to illness or other inability to work, as other partners may be prepared to take on

more work temporarily to avert a crisis

DisadvantagesMany of the disadvantages of sole traders apply to partnerships There is unlimitedliability, so the nancial risk falls upon the individual partners. Unless the partnershipis large and well-established, it is unlikely to amass any signicant economies of scale,so the partnership may be unable to compete with bigger players in its market

Some disadvantages stem from the problems of shared responsibilities Many partner-ships break down because those involved cannot agree on direction, objectives, andsplit of prots or workload.

LIMITED COMPANIES

 A limited company is a separate legal entity existing in its own right, distinct fromthe shareholders or people who own or run it It is more costly to set up and run,but the directors’ personal assets are not normally at risk should the business failLimited companies have a greater regulatory and administrative burden placed uponthem. They must register and le accounts with Companies House and are liable for corporation tax

Companies have a formal constitution set out in the Memorandum and Articlesof Association The Memorandum sets out the framework of the business in a setof clauses The Articles are the internal constitution, laying down how directorsare elected and removed, rights and duties of shareholders and other internal

constitutional matters

The two main forms of limited company are:

  Limited by shares

   Limited by guarantee 

The company limited by shares has shareholders and tends to be used in prot mak -ing ventures – with the owners being able to take out the prots of the company (by  way of dividends). A company limited by guarantee tends to be used by not for prot

organisations; any prots (or assets) are not available for the “members”.

 AdvantagesThe shareholders or founders have limited liability, ie they only stand to lose at most

the amount of money they have invested in the company Any obligations incurredaccrue to the company itself, separable from the individuals The owners of thebusiness reap rewards in the form of dividends. These are distributed prots, so themore the company makes, the more the shareholders gain Shareholders can also gain

by the value of their shares appreciating If a company is successful the value of theshares will increase The converse is also, of course, true In a doomsday scenario, theshares can become worthless

DisadvantagesPotential problems in extracting funds form the company for personal use, and agreater administrative and legal burden If a company hits a bad patch, its poor performance can result in a self-fullling prophecy and the value of the company  will fall, this may be academic for most freelancers since the value of the company isnegligible if it is dependant on the owner/freelancer

SOCIAL ENTERPRISES

 A social enterprise or not-for-prot organisation is a business with primarily social

objectives whose surpluses are principally reinvested for that purpose in the businessor in the community Many arts organsations are social enterprises If you are looking

for funding, rather than loans, it might be best to set up as a social enterprise toprove where your prot/surplus is going. Many Trusts and funders will make this arequirement and some will expect you to be a registered charity Within this denition, social enterprises can take on a variety of forms, including:

  Unincorporated associations  Trusts

  Limited liability companies  Some industrial and provident societies such as community benet societies  Charities  Community Interest Companies  Charitable incorporated organisations

 AdvantagesEasier to access public funds and shows a greater level of transparency and probity

Depending on the format adopted it will minimise the nancial risk and exposure.

DisadvantagesPotential problems in extracting funds from the company for personal use, with agreater administrative, management and legal burden The costs of formation may behigher than other business structuresFor more information see: www.setas.co.uk ; www.charity-commission.gov.uk ; www.proactiveresolutions.com

Business Structure 

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  STATUS

The majority of freelancers consider themselves self employed, however this may notbe a view shared by the client The client is under a legal obligation to assess thestatus of the freelancer, ie whether the freelancer is employed or self-employed, thisis called a ‘status test’ The status test will have a fundamental bearing on the way 

payments are made to the freelancer

Payments to the self-employed can be made gross, whereas payments to employees

have to be made under the rules of Pay As You Earn (PAYE) A freelancers claimthat they are self-employed is not sufcient to discharge the client’s responsibility; a‘status’ check must be carried out

The essential characteristic of employment is a contract of service, and that of aself-employed worker is a contract for services A contract of employment mustcontain an obligation on the part of the employee to provide their services personally,

 without such an obligation the contract is not one of service The terms of thecontract are not conclusive in determining status, and over the years a number of factors have evolved as indicative of contract for services, and therefore a pointer toself-employment

Some of these factors include a right of substitution of personnel; the worker usingtheir own money and taking nancial risks; exibility regarding working hours and

place of work; the worker ’s right to decline to perform certain work; a statement thatthe worker will be responsible for their own tax affairs; the worker being responsiblefor rectifying work in their own time and at their own expense

Each case or situation has to be judged on its own individual circumstances andmerits, and there is no formulaic approach available to determine whether a worker is employed or self-employed Freelancers need to be aware that they must also apply 

these tests to any individual that they work with, or buy services from

Record Keeping It is useful if the freelancer has some basic nancial knowledge and awareness.Before these issues are explored it would be useful to put accounting into contextand explain what it is

Understanding accounting and nance is important for an effective freelancer; thebenets of a good system can be compared to the control panel on an aircraft. The

pilot relies upon his instruments to measure and control the performance of theaircraft, shows him how the aircraft is doing, what outside conditions are like, thepath he should take and so on. The instrument panel is not ying the aircraft; it ishelping the pilot to do his job properly

 Accounting affects three main areas:

  Record keeping  Financial accounts  Management information

Like the aircraft’s instrument panel these elements help us measure and control our 

performance, tell us how we are doing, and help guide us Knowing how to operateand use this instrument panel will help in the running of any venture

  BOOKKEEPING

 We should keep records of income, purchases, expenses, assets and liabilities Thiscan be done on scraps of paper, but a good formal system of record keeping isrecommended Good recording systems enable us to satisfy our obligations to the

appropriate tax and government agencies, control and monitor the business andprovide an effective management information system

The objective of nancial accounting is to provide nancial information about abusiness. This information is given in a set of nancial statements, which are:

  The prot and loss account – a summary of the business’s transactions for a given period of time

  The balance sheet – a statement of the business’s nancial position (debt,assets and value) at one point in time

Financial records will need to be kept for 

  Proper nancial control  Information Transparency 

  Third party obligations  Contractual obligations

Record Keeping 

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 Any records that are kept need to show 

 What cash has been spent and received Monies paid in and out of the bank 

   Who we owe money to   Who owes us money 

The level and extent of the record keeping system will be inuenced by the size andcomplexity of the freelancers business The information below presents an overview 

of record keeping, any system needs to be adapted in light of individual circum-stances – the key is that some form of regular and organised record keeping shouldbe implemented

BANK AND CASH RECORDS

Cash transactions should be kept to the minimum; Petty cash transactions must berecorded on petty cash vouchers and in the petty cash analysis book, and analysedunder appropriate headings (for example ‘travel expenses’, ‘postage’) Whenever possible a receipt should be obtained and stapled to the petty cash voucher, whichshould be numbered Always record full details of the transaction - the amount,

 what it is for and the voucher number The amounts entered in the columns in thecashbook should be included in the business accounts

Imprest SystemThis is a very popular system that is used to record cash payments and would be usedfor petty cash payments. A level for a cash oat is decided upon and this is put intoa cash box (ideally secure and safe), when the oat becomes low it is topped up tooriginal cash oat

Cash analysis book The cash analysis book, often known as the cashbook, is an organisation’s mostimportant nancial record. Entries should be made as soon as possible after every transaction (ie money paid into the bank, cheques drawn or standing orders or direct debits paid)

Cash analysis books use a number of columns to analyse each transaction Eachcolumn is given an appropriate heading, for example, Stationery, Rent, Travel, etc If 

all income is recorded in one column, this should be headed ‘income’ Although notcompulsory, operating a business account will keep your personal nances separatefrom the business and present a more credible status Remember, the Inland Revenue

 has the right to look at your business records and therefore you will need to keep

them for at least six years.

Bank statements and bank reconciliation statements A bank statement is the bank’s record of our nances. This record may not agreeexactly with that in the cash book(s) because it can take a few days for depositsand payments to appear in a bank account Bank statements should be checked

immediately against the cash book(s) and a bank reconciliation statement should beprepared along the following lines and kept at the back of the cash analysis book If 

the two gures do not agree, check the entries in the cashbook:

  Have all payments and receipts been entered correctly?   Has a cheque issued some time ago not cleared?

  Has the cashbook been added up correctly?

Customer recordsEvery time you do some work for a client you should produce an invoice (or providea receipt if for cash) The invoice should contain a minimum level of information,namely (a) date – this should be the date when the work was completed; (b) customer’s name and address; (c) invoice number/reference; (d) a brief descrip-

tion of what work was carried out; (e)  value of the invoice – exc and inc VAT

The invoices should be led in numerical order, ideally divide the le into a paid

and unpaid section – as the invoices are paid then transfer them to the paid sectionCredit control is an important consideration and is outlined below

Supplier recordsMost freelancers with relatively straightforward affairs can adopt a method similar 

to cash analysis; purchases are recorded (when the item is purchased or serviceprovided) under the appropriate heading, eg stationery postage, travel etc When

the bill is paid this should also be recorded

The invoices should be led in numerical order, ideally divide the le into a paidand unpaid section – as the invoices are paid then transfer them to the paid sectionSuppliers may send remittance advices; these should be attached to the invoices

PRICING AND PROFIT

The price you charge for your product or service is one of the most importantbusiness decisions you make Setting a price that is too high or too low will - at best- limit your business growth At worst, it could cause serious problems for your sales

and cashow. If you’re starting a business, carefully consider your pricing strategy before you start. This will be inuenced by the type of service offered, competition,expertise, market forces and individual cost base

Established freelancers can improve their protability through regular pricing reviews. When setting your prices you must make sure that the price and sales levels youset will allow your business to be protable. You must also take note of where your product or service stands when compared with your competition

In broad terms, prot is income generated, less (running) costs incurred. It does

not normally include money you draw out yourself, and will not include the cost of purchasing items such as equipment and computers; depreciation is claimed instead

Record Keeping 

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  CREDIT CONTROL

Many freelancers fail in the rst few years due to cash ow problems. It is essentialto take a professional approach to getting paid Freelancers face a delay betweengenerating income and subsequently receiving the cash, example sources beingfrom fees, grants, sales, grants and donations There are effectively two stages to the

management of credit control, namely the initial granting of credit facilities and itssubsequent management Granting credit always carries an element of risk (of notreceiving the cash), credit control is about the management of that risk

 Clients should be assessed for their credit worthiness (credit scoring), the size andstatus of the client is not a determinant of their credit worthiness, large organisationsare as likely to default as small ones

Credit scoring can be carried out using trade and bank references, Companies Houseinformation, county court register, client visits, rumours, rst impressions and credit

reference agencies The internet is a useful tool in credit scoring and one has accessto a large amount of relevant information and credit ratings The key idea behindcredit scoring is to prole the client in terms of risk.

Ideally a written agreement should be drawn up stating the terms and conditions of 

payment, eg number of days to pay, interest being levied on late payments, legaltitle to goods not passing to the client until full payment is received etc This will be

important if legal action has to be instigated

Once the invoice is issued then call the client within a few days (as part of a “postsales” review) to check that the client is happy, that there are no problems and thatthe invoice was received (and by the correct person/department) If payment is notreceived by the due date then reminder letters/faxes and phone calls need to bemade, the letters or faxes will go up in severity from the “friendly” to potential court

action – at this stage client relationships would have deteriorated – court actions canbe instigated online and are procedurally efcient.

Technology can play an important part in credit control, for example the issuing of invoices via e-mail, setting up time alerts (Microsoft Outlook), and the production

of credit reports showing outstanding invoices and days outstanding Electronicdelivery methods will quicken the collection processes, provide conrmation that theinvoice was sent, and save money on consumables and postage Remember to:

  Conrm all orders or commissions in writing   Agree payment schedules in advance and include the detail in a contract Send invoices promptly and statements to chase late payers

  Follow up any overdue invoices immediately by telephone and letter/email

 Also remember that getting paid is only part of the story – regularly monitor your 

income against projected expenditure and adjust your charging to reect realisticoverheads and time spent

Tax & Compliance  A freelancer operates within a framework of legislation and regulation, none moreso than when dealing with the Inland Revenue (Her Majesty’s Revenue & Customs,HMRC) The consequences of non-compliance usually result in penalties and interest

being levied by HMRC

OBLIGATIONS

 As a minimum a freelancer will need to formally notify and register with HMRC within3 months of starting as a freelancer Most freelancers will need to complete andsubmit a tax return to HMRC, electronically or in paper form, the return covers allincome and capital gains earned in a tax year (6th April to 5th April)

There are a number of key dates in the tax ling calendar. If a paper return is beingled then the completed return must be sent in by 30 September following the endof the tax year if you wish the tax calculation to be done for you and have any tax owed (under £2,000) collected via your PAYE code; if ling via the Internet then therequisite date is the following 30 December, 31 January is the normal nal deadline

to submit the returns and pay any tax due – if penalties and tax are to be avoidedPayments are normally made twice a year, 31st January & 31st July, these are made

up of payments on account (advance payments for tax) and balancing payments(clearing arrears)

 A freelancer will pay income tax on prots generated by the business (sole trader or partnership), or corporation tax and PAYE if operating through a limited company The relevant tax rates are quoted in Appendix 1 (  22 )

  NATIONAL INSURANCE

Individual freelancers will pay self-employed at rate (Class 2) National Insurancecontributions (NICs) throughout the year These are collected by HMRC and give an

individual entitlement to benets including state pension, maternity and unemploy -ment benets. Additional (Class 4) NICs will be paid if prots exceed a certain limit.

  TAX DEDUCTIONS AND CLAIMS

Money will be spent by the freelancer on a wide range of things, some will reducetheir tax bill, and others will not – on average every £100 of allowed costs will savethe artist at least £30 in tax. In general the expenditure reduces tax if it is “wholly and exclusively for business purposes” The Revenue, by concession allows certain

expenditure to be split on an equitable basis between business and personal, for example vehicle running costs and telephone costs are usually in respect of businessand personal use

Tax & Compliance 

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 Where a freelancer makes business journeys outside their normal pattern, or thebusiness is by its nature itinerant, for example a travelling freelancer, then modest

expenses may be tax deductible Where a business trip necessitates one or morenights away from home, the hotel accommodation and reasonable costs of overnightsubsistence are deductible The reasonable costs of meals taken in conjunction withovernight accommodation are allowable, whether or not paid on the same bill

 A freelancer can choose to claim actual costs of (business) travel using their owntransport or claim a mileage allowance instead; this mileage allowance is given for 

cars, motor bikes and pedal cycles – this can be more advantageous than claimingactual costs

 Where a freelancer pays for training courses with the purpose of up-dating their skills and professional expertise, it is normally allowed as a tax deduction However,if a completely new specialisation or qualication will be acquired as a result of theexpenditure, it is unlikely that the expenditure will be allowed

Expenditure on business entertainment or that which is incidental to businessentertainment is not allowable as a tax deduction Business entertainment meansthe provision of free or subsidised hospitality or entertainment The person beingentertained may be a customer, a potential customer or any other person

If a freelancer can demonstrate that hospitality is given as part of a contractual ar-

rangement in which services of an equivalent value are provided, then the hospitality costs are not treated as business entertainment, and the expenditure allowed Other deductions can be made in respect of the use of a room as an ofce and the purchaseof equipment

VAT - VALUE ADDED TAX

If your business has an annual income (excluding grants) of more than the currentthreshold (£61,000 post 01-Apr-06) you must register for VAT with Customs & Excise,once registered you must charge your customers VAT and submit regular VAT returns

 A VAT registered business must charge their customers VAT (output VAT) on the value of their goods and services, they will pay VAT (input VAT) on the goods andservices they buy in, the difference between output and input VAT is paid to HMRC,

or claimed back Businesses may choose to voluntarily register for VAT, this may bebecause they wish to project a certain image about their business (by way of size) or be able to claim back VAT

There are effectively three categories of supplies for VAT purposes, standard-ratedand zero-rated (taxable) and exempt supplies (non taxable) Zero-rated suppliesinclude the supply of food, books (but not stationery), protected buildings; exempt

supplies include works of art, fundraising events, education, health and welfare VATregistration is governed by the level of taxable supplies

Legal Issues The law can be thought of as a set of rules and regulations; they say how individualsand organisations should behave and what happens if the rules are not followed Wehave a network of courts in this country that deal with breaches of the law and who

decide what the consequences should be if the law is broken

THE LAW OF CONTRACT

In a wide variety of agreements with individuals and organisations, if someone doesnot honour their side of the agreement, it does not necessarily mean that there willbe any legal consequence With any form of business or commercial relationship it isalways important to have good written records, however it is not essential for a con-tract to be in writing for it to be legally effective The following are the fundamental

requirements for a contract to be valid:

   An intention to create legal relations - the parties are intending to acceptthe authority of the law, and to be bound by their contracts

  Capacity - the parties must have the legal capacity, or ability, to enter into

the contract and accept the authority of the law   Offer and acceptance

  Consideration - both parties must provide money or money’s worth  Consent - the parties must genuinely consent to the terms of the contract

  INTELLECTUAL PROPERTY

Freelancers in the creative sector may be involved with intellectual property, from a

creation and/or use perspective Intellectual property, often known as IP, allows people toown their creativity and innovation in the same way that they can own physical propertyThe owner of IP can control and be nancially rewarded for its use. In some cases IP givesrise to protection for ideas but in other areas there will have to be more elaboration of an idea before protection can arise It will often not be possible to protect IP and gain

IP rights (or IPRs) unless they have been applied for and granted, but some IP protec-tion such as copyright arises automatically, without any registration, as soon as there is arecord in some form of what has been created The four main types of IP are:

  Designs for product appearance  Copyright for material - literary and artistic material, music, lms, sound

recordings and broadcasts, including software and multimedia Patents for inventions - new and improved products and processes

  Trade marks for brand identity 

However, IP is much broader than this extending to trade secrets, plant varieties,geographical indications, performers rights and so on Often, more than one type of IP may apply to the same creation

Legal Issues 

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Insurance There are three main types of insurance that you will probably need to look into when in business

  Liability insurance  General & commercial insurance  People, life & health

  LIABILITY INSURANCE

 As a business owner or employer, you have a legal responsibility towards your customers, the public and any employees You could be held legally liable and risk being sued if a member of the public or an employee is injured as a result of your negligence or breach of duty

Liability insurance is designed to pay any compensation and legal costs that occur if an employer is found to be at fault If you employ anyone it is most likely that you willneed to have employers’ liability compulsory insurance (ELCI)

  GENERAL & COMMERCIAL INSURANCE

Insurance can protect your business against damage to, or the loss of, physical assetsThe cost of insurance depends on both the insurer’s assessment of the likelihood of damage and the size of any payment they may have to pay in the event of a claim

  PEOPLE, LIFE AND HEALTH

If you suffer an injury, illness or death, there could be serious nancial consequences

for you or your business Insurance can provide protection for the business itself,as well as for the individual concerened If you are thinking about buying someinsurance protection, it is always a good idea to get expert help from an independentnancial adviser. 

Planning It is important to plan, to be more proactive than reactive An eye needs to be kepton the future; here we outline some key areas

BUSINESS PLANS

 A business plan is simply a planning tool to help you document your vision and how  you will achieve it Be aware that a business plan is a living document, which meansthat you will need to keep it up-to-date as your business expands

 A business plan covers:

  The business objectives – your vision

   An outline of the products and services you intend to supply 

Demand – customers, competitors and your unique selling points

  Marketing plans – pricing, promotion and related costs

  Finances – estimated sales, overheads, cash ow 

  Organisational issues – premises, staff, equipment, IT support

  Success criteria – both business and personal

   A synopsis of the key points of your entire plan (executive summary) for those who have limited time to read the full document

If freelancers are to plan (which is recommended) then it is necessary to carry out aninternal and external evaluation One of the more popular methods is by carrying outa SWOT analysis

SWOT ANALYSISSWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats The

SWOT analysis should draw out any opportunities and threats that face the organisa-tion, then together with the strengths and weaknesses, it is possible to see how opportunities can be met and threats can be avoided

StrategiesThe completed SWOT analysis should help give you an overview and a starting pointas to where you want to go Objectives are what we want to achieve and should be

incorporated into a strategy, which outlines how you plan to do this Objectivesshould be SMART:

Insurance & Planning 

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    Specic: clear indication of what the goal is

    Measurable: able to evaluate progress

    Agreed: supported by all staff 

    Realistic: achievable

    Time-constrained: deadlines set

  CASH BUDGETING 

Cash is the effective “lifeblood” of any business and organisation, poor control andinsufcient access to it will result in business failure. Cash is critical in the short,medium and long term; weak control will lead to a lack of sustainability 

If cash is not pulled in on time to (at least) meet cash liabilities then sustainability isnormally maintained by additional borrowings and/or payment delays of liabilities – whether it can continue to be maintained is a separate issue

It is critical that f reelancers prepare a cash ow forecast, this is vital for risk manage-ment and identifying potential problems The construction of a cash budget requires

us to look at the future and requires us to address three key questions

   WHEN do we receive and pay cash?   WHAT do we receive and pay cash from/to?  HOW MUCH do we receive and pay cash from/to?

These are the essential questions that we need to answer if we want to build a

relevant and effective cash ow forecast.

 A cash ow template can be found at  www.proactiveresolutions.com

  TIME MANAGEMENTTime is a resource that is nite, (unfortunately) it cannot be increased and we have

to manage within a 24 hour day. However, it is important to manage time moreefciently and effectively, a number of systems exist to facilitate this management,below are some general points to bear in mind

Daily PlanningOnce you are familiar with using a system that suits you to organise and prioritiseincoming tasks you can begin to build on that system and incorporate other planning

techniques

Use Your Time To Your Advantage - Be In ControlPlan your day bearing in mind when your energy levels are at their highest

Don’t break your chain of concentration with interruptions that you can prevent

If you are becoming increasingly aware that your time seems to be slippingaway and that there is a danger that tasks could start to edge nearer the

CRITICAL ZONE check this out Keep a time log to see where your time goes

  Minimise too many interrupting phone calls

Handling Paperwork 

  Get into the habit of managing your desktop as if it’s one of the mostimportant elements to winning back your time

  If you have one project, one piece of paper or whatever you are working onin front of you and the rest of your desk is clear, you’re bound to have more

energy, focus and direction for that project

Handling Interruptions & Distractions

  Keeping a handle on distractions will be the main issue to deal with, this

might be in the form of casual callers and people who ask if you “have aminute”, which rarely means a minute

 Ways in which to deal with this is to keep an appointment diary visible for enquirers to use / see

  For other interruptions and distractions keep a note book with you at alltimes, not only will this banish all the scraps of paper but when at your desk  you can instruct people to note down their query in a central place

Planning 

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Marketing Selling your work can be much harder than creating it in the rst place and marketingoften does not come naturally Here are some pointers:

Decide what makes your work dierent:  Think about what makes your work unique and why someone might choose

it over something else In other words, what is your unique selling point?  Try and express that clearly and concisely (for example as a strap line) and

use it in your written material (see promotion below)  If there are a lot of people doing what you do – think about how you can

specialise eg a web design company specialising in websites for schools, adance school for children specialising in street dance

Presenting your work:

   Who is likely to buy your work? This might be other businesses or thegeneral public Think about where those sort of customers will go to buy and what sort of papers, magazines, websites they’ll read How can you get

free PR in those media?  Make sure you have a good collection/portfolio of work to present and

short testimonies from past customers  Make sure your work is well presented: well displayed, framed, packaged

and labelled  Have some information about you, how you work and what makes you tick

If people are buying creative work they want to know about the person whomade it

Pricing your work:

 When pricing your work take into account:

   What is charged in other places for the same sort of work – do some

research  How much it cost you – ensure you get a decent rate per hour to includecovering all your costs plus a prot margin!

How you want to be perceived: affordable, market average, premium/luxury 

Promotion:

  Decide what you want to use as your brand name and/or logo so peoplecan come to recognise it This could just be as simple as your name in aparticular colour or typeface Use it on all stationery, business cards, and

 websites   When producing promotional material make sure you include a description

of what your product or service can do for a customer/client

  Make trying your service/product easy – offer tasters or money back guarantees

  Keep a database of past and potential customers and keep in touch every sooften This could be via a newsletter, Christmas card or an occasional emailabout good news

  Make sure you assess everything you do to promote yourself so you can

decide whether it is worth doing again Keep records on how many sales or contacts you get from each fair, networking event, advert, mailing or from your website

  Use free promotional tools wherever possible eg press releases on aninteresting story or new product

  Make sure you network with others to meet potential customers; ndout about your competition and meet potential collaborators Thismight include going to launches, private views, seminars, conferences,performances as well as networking events

Sales channels

  Think about the various ways in which you can sell your work or serviceseg shops, galleries, web site, shows

 Will you be working directly with customers or through other businesses?

If through others you will need to build some commission into your pricesfor them

  Recognise who your customer is and who the consumer is Your customer may not be the consumer and their needs may be different ie a danceschool customer may be the parents, and the children the consumer

Marketing 

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 Appendices 

 Appendix 2: Glossary of Terms  Appendix 1: Tax Rates 

Freelancers are subject to tax on their taxable prots (see pages 12 to 13 ) less any personal allowances, they then pay tax on the balance at the appropriate rates

 We have decided to provide the current and historic tax rates and allowances in aseparate document on our web site; this is because these rates and allowances are

subject to change at least on an annual basis

The tax rates and allowances can be found at:

 www.proactiveresolutions.com/resources-downloads/tools-and-templates/ 

 AssetItems of value controlled and used by 

the business

Capital expenditureExpenditure incurred in the acquisition

of xed assets for business use and not

intended to be resold

Corporation taxTax payable on company prots

CreditorsThis is part of current liabilities and is

the sum of money owed by a business to

its suppliers

Current assetsThese are short-term assets such as

stock, debtors and cash

Current liabilityShort term debt payable within one year,

eg suppliers

DebtorsThis is part of current assets and is the

sum of money owed to a business by its

customers

Depreciation A non-cash expense which is the cost of 

using an asset

Income taxTax payable on income such as prots

(sole trader or partnership), wages and

interest

Liability An obligation to pay money at a future

point in time

Long-term liabilityFunds provided for the business on

a medium to long-term basis by an

individual or organisation, eg a bank

Net assetsTotal assets less total liabilities

Net current assets Also called working capital; it is the

difference between the current assets &

current liabilities These are the fundsof the business for day-to-day transac-

tions, eg paying bills

Net proftIncome for a period less all expenses for 

the same period

PAYE 

Tax paid by employees & employer, the

system is operated by 

an employer 

Revenue Expenditure incurred in obtaining assets

for turning into cash; Expenditure

manufacturing, selling & distribution

goods; day to day administration of the

business; and maintaining xed assets

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  CREATIVE LINKS

FOR DANCE

Dance4  www.dance4.co.uk  [email protected]  0115 941 0773

Dance Uk  wwwdanceukorg info@danceukorg 020 7228 4990 

FOR THEATRE

ITC wwwitc-artsorg admin@itc-aertsorg 020 7403 1727

FOR VISUAL ARTS

a-n The Artists Information Company  wwwa-ncouk  info@a-ncouk  0191 241 8000

 Arts Training Central wwwartstrainingcentralcouk info@artstrainingcentralcouk  0116 2425202 apd Artists Professional Development Network  wwwapd-networkinfo apd@a-ncouk  0114 276169

 Artquest

wwwartquestorguk  stephen@artquestorguk  020 7514 6493

FOR FILM

EM Media wwwem-mediaorguk  info@em-mediaorguk  0115 9349090

FOR FASHION

Emtex  wwwemtexorguk  enquiries@emtexorguk  01623 440 612

FOR CRAFT

Crafts Council wwwcraftscouncilorguk  reference@craftcouncilorguk  020 7278 7700

CreativePeople

wwwcreativepeopleorguk  info@creativepeopleorguk  01883 371112

FOR DESIGN 

Design council wwwdesigncouncilorguk  020 7420 5200

British Design Innovation wwwbritishdesigncouk  info@britishdesigncouk  01273 621 378

Design Trust

wwwthedesigntrustcouk  info@thedesigntrustcouk  020 7435 4348

The Design Factory  wwwdesignfactoryorguk  info@designfactorycouk  01529 414 532

  BUSINESSES SUP-

PORT ORGANISATIONS

   www.proactiveresolutions.com

  [email protected]

0116 224 7122

Bplanscom wwwbplanscouk  sales@paloaltocouk  0845 351 9924

British Chambers of Commerce wwwchamberonlinecouk  info@britishchambersorguk 

020 7654 5800

Business Link/Small business services wwwbusinesslinkorg 0845 600 9006

Companies House wwwcompanieshousegovuk  0870 333 3636

DTI Department of Trade and Industry  wwwdtigovuk  dtienquiries@dtigsigovuk  020 7215 5000

The Enterprise Centre for the Creative Arts wwwecca-londonorg info@ecca-londonorg 020 7514 7985

HM Customs & Excise VAT Advice Centre wwwhmcegovuk  0845 010 9000

Inland Revenue wwwinlandrevenuegovuk  0845 915 4515

Learning & Skills Council wwwlscgovuk 

info@lscgovuk  0870 900 6800

National Federation of Enterprise Agencies wwwnfeacom enquiries@nfeacom 01234 831 623

wwwcreativeleicestershireorguk 

chudson@leicsgovuk  0116 267 0017

 Appendix 3: Useful Contacts This section lists contact details of organisations that may be able to provide more indepth advice and guidance on starting a business

 Appendices 

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© Pro Active Resolutions Whilst every care has been taken in the 

preparation of this document, Pro Active Resolutions cannot be held beyond 

statutory liability for errors or omissions. The information is for general 

guidance only. You should neither act, not refrain from action, on the basis 

of any such information. You should take appropriate professional advice 

on your particular circumstances because the application of laws and 

regulations will vary depending on particular circumstances and because 

laws and regulations undergo frequent changes.

Produced with the 

assistance of

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2-4 Frog Island,Leicester

LE3 5AG

Tel : (0116) 224 7122

website : www.proactiveresolutions.com

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