Great advice. Just the kind of thing I needed when I was freelancing but couldn’t seem to find.

On the ‘business’ front (I know you’ve clearly spelt it out), but I wasn’t interested in running a company – I didn’t want to be a sole trader, I just wanted to freelance and get paid – there is no such option! All HM R&C are interested in is claiming the Tax you owe and the simplest form of company is Sole Trader. You have to be a company, there is no such thing as freelancer when paying Tax.

My advice, if you just want to do a bit of freelance work is stay Sole Trader. If you want to be freelance ‘full-time’ (and not through an recruitment agency) then becoming a Limited Company is more tax efficient but you will have to register and submit your records with Companies house (yearly) at a cost. I now run a small company and wouldn’t dream of trying to do the accounts for HM R&C or Companies House myself! Accountant fees are also higher as Limited companies are more complex.

Another thing to note is as although Sole Trader implies one person you can also operate as ‘business’ – with staff, premises etc or just as a way of earning yourself a living. A limited company is just that – a company in it’s own right, you will be a director and possibly an employee of that entity.

On the VAT front, if you want to work freelance for other web/design agencies you will be more attractive (to me) if you are not VAT registered. There are few large consumable costs when working as a small online company, we take advantage of the Flat Rate Scheme (Andy Hawken outlines). So we can not claim back VAT on our expenses. VAT registered freelance services cost us 8% more than those that are not. Small but a consideration.

In short my advice is stay Sole Trader, don’t register for VAT, keep it simple. Keep records of everything, it is possible to do your own tax return at the end of the year but it took me a day to do so (things may have changed), if an accountant will do it for you for £300-400, would you prefer just to work 1-2 extra days doing what you’re skilled at and pay? I’ve only ever done a tax return once!

And do all of Rachaels top tips!