How to register as a freelancer: All you need to know

Need help deciding whether to be a sole trader or set up a company? Learn the difference between the two and how to register your freelance business.

3 min read

Freelancing can take various legal forms, and so you might find yourself wondering how to register as a freelancer. While you’re technically self-employed, you operate as a small business. Dive into our friendly guide to freelancing legalities to determine if you need a business license, how much tax you should be paying and whether you need to register a company.

One of the first and most important decisions you have to make after deciding to break out and go freelance is to choose the right type of legal structure for your practice. There’s a lot to research and consider before you make the final decision.

  • Company type The majority of freelancers tend to work under one of the two most popular legal structures—either as self-employed (“sole traders” or “partnerships”) or via a private limited company.

  • Tax structure Depending on which legal structure you choose for your freelance business, you’ll be taxed differently. Sole traders pay taxes on all profits they make over the year via the self-assessment process. Limited companies, on the other hand, pay corporation tax on all annual profits they make, and company directors pay personal income tax on all earnings drawn from the company.

  • Invoicing The financials might be your least favorite part of the business, but you’ll need to do them to get paid! When it comes to invoicing, there are a few legal details that must be included. For sole traders, it’s enough to include your full name, your business name if you’re using one and your legal registered address. For those working via a limited company, the invoice must include the full company name.

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  • Bookkeeping Getting your finances in order is crucial for two main reasons: to avoid tax penalties and to run a healthy business. This means you should track all your expenses and collect receipts, have a proper invoicing system that helps you monitor all unpaid invoices, set aside a tax budget and split all business transactions into a separate bank account.

  • Business insurance You are not legally required to have business insurance. However, as a sole trader, you’d be responsible for the liabilities of the business. To protect yourself from the unforeseen, it’s recommended to take out freelancer insurance.

A man registering himself as a freelancer with a desktop.

Should I register as a limited company or remain self-employed?

Do freelancers need to register a company? Not legally. When you’re just starting out, it can be easier to keep things simple and register as self-employed (also known as “sole trader”). It allows you to focus on getting your freelance business up and running and learning the ropes of freelancing, without needing to worry about any of that legal stuff like company law, paying corporation tax or filing annual accounts.

Setting up as a sole trader tends to be more straight-forward for new freelancers, with there being less steps involved in the registration process as it is the simplest business structure available.

With a few good years of freelancing under your belt, you can consider becoming a limited company. Although this option comes with a higher admin burden (appointing directors, registering with the relevant authorities, completing company accounts, and filing annual tax returns), it can bring tax savings.

This is because sole traders typically pay income tax, whilst Limited Companies typically pay Corporation tax, and currently Corporation tax offers a kind rate. Another reason is that when you hit a certain level of earnings, income tax can increase whilst corporation tax stays the same despite earnings.

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Setting up a freelance practice can seem daunting. Thankfully, N26’s free bank account for freelancers and the self-employed makes it easier, letting you earn 0.1% cashback on all purchases you make, and enjoy free card payments worldwide. The best part? It only takes 8 minutes to set up.

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