Can Freelancers Get a Mortgage?

The life of a freelancer comes with many benefits. Being able to choose where and when you work, the diversity of projects you’re involved in, the freedom to select which clients you do (and don’t) work with, and beyond.

Freelancing brings with it many wonderful opportunities around flexibility and professional autonomy. However, being a freelancer can also complicate some areas of life that aren’t quite so fun to deal with – one of which is securing a mortgage.

In the past freelancers had to use self-certification mortgages, where you would simply tell the lender about your earnings. Due to abuse of the system, these mortgages were branded ‘liar loans’, because people would exaggerate their income to get a bigger mortgage.  They have since been banned by the Financial Services Authority, to protect both lenders, and to help prevent borrowers getting into financial difficulties.

 

Is it harder to get a mortgage as a freelancer?

Sadly, not all mortgages are created equal. The application assessment for a full-time high-salary PAYE employee won’t look the same as a mortgage application assessment from a freelancer.

This is because freelance income is considered to be far more unpredictable than a salaried income. The fluctuation which is so synonymous with freelance cash flow can be a red flag to mortgage lenders when they’re assessing whether you can afford (and pay back) what they might lend.

 

Why mortgage lenders look at employees and freelancers differently
  • Employees of a business are usually paid a basic annual salary, which means that mortgage lenders can more easily assess affordability. Without business expenses to think about, outgoings are also likely to be more stable and predictable.
  • Freelancers, on the other hand, can’t provide that same level of certainty. Income can fluctuate, and there are also business expenses to consider. Which is the spanner in the works when it comes to getting a mortgage.

 

One of the problems is that different lenders have different ways of approving people. Some will only ask for a year of accounts, others will demand to see three years. If you’re new to freelancing or running your own business then this can be particularly troubling.

But just because securing a mortgage is a little more challenging for a freelancer, doesn’t mean it can’t be done.

The even better news? Following a steady growth in the UK freelance and self-employed workforce over the past few years, lenders are now being forced to rethink their policies. Mortgage lenders are having to consider more complex financial situations that stray from the conventions of traditional basic salaries and ultimately, become more flexible and inclusive.

 

How much can a freelancer borrow?

There isn’t a cut and dried answer to this because borrowing is usually based on your annual income, and how this reflects your ability to meet your repayments. So if you earn £85,000 per year through freelance work, you’ll likely be able to borrow a great deal more than a freelancer earning £30,000.

 

Do freelancers have to put down bigger deposits on properties?

Officially, no, but the bigger the deposit, the more attractive (and reliable) you’ll appear to a lender. If you can save up a deposit of 20-25% great, but if you can pull together a 30-40% deposit then even better.

However, that’s not to say you won’t be considered for a standard 5% or 10% deposit application as a freelancer. It really does come down to your financial circumstances, getting advice from reputable specialists, and researching your options meticulously.

 

What can freelancers do to help secure a mortgage?

So, you’re a freelancer looking to secure a mortgage. There may be some hurdles, but there are ways to mitigate these and give yourself a better chance of securing mortgage approval.

 

Get some freelance miles under your belt before applying

Mortgage lenders can be wary of freelance applicants due to the higher possibility for unreliable income. For this reason, it’s useful to have at least two or three years worth of freelancing financial records available before approaching any lenders. You’ll still need to demonstrate your plans for the future, but historical information helps reassure lenders that you know what you’re doing. It’ll also give you more time to increase your deposit!

 

Find an accountant to help you with your mortgage application

Lenders prefer it if you to have an accountant because it’s another marker of stability. A good accountant will help you keep your finances in order, which means you’ll have solid, credible records to show lenders.

It’s also worth remembering that a very good accountant will advise you on how to be more tax efficient, but without minimising your taxable income to an extent which damages your income figures for a mortgage application! much as this will affect your ability to get a mortgage. Check out our guide to choosing the right accountant for you.

 

 

Keep good credit and business records

A lender will do a credit check on you and your business. You should make sure you keep good records (and this is where decent bookkeeping software will be a lifesaver), and keep a close eye on your cash flow. Try to pay off any late or unpaid loans so that your credit score is as clean as possible.

 

Maintain a good client list

You will need to show you have a steady stream of income, which is harder to do if you’re a freelancer. With a good marketing plan, online presence, effective pitching, and the ability to handle a variety of clients, you can minimise the risks.

Don’t just rely on one big client who will leave you in the lurch if they go elsewhere or go bust. Having several clients is the freelance equivalent of not putting all your eggs in one basket.

 

Find more online resources for freelancers, or get an instant online quote for accountancy services.

Do UK Freelancers Pay Tax on Foreign Earnings?

As a freelancer, working for clients overseas is an appealing prospect. It opens doors to exciting new opportunities, extends your network, and means you’re not always up against the same competition time and time again.

Not to mention the travel potential – client meetings don’t sound so bad when they bookend a holiday abroad, right? It’s not all glamour and jet-setting though. With overseas clients comes the complication of communication across time zones and the tax implications.

Fortunately there are rules and regulations in place to ensure freelancers don’t paying tax in more than one place but as with most tax rules, you’ll need your wits about you.

 

In this article we’ll be covering:

  • What is classed as foreign earnings (foreign income)?
  • What a Statutory Residence Test is and why is it important to freelancers with clients overseas?
  • An explanation of your tax residence status and what this means
  • What to do if you’re taxed in more than one place

 

First, let’s clarify what falls under the umbrella of foreign income for UK freelancers.

 

What is classed as foreign earnings?

The Gov.uk website defines foreign income as: “anything from outside England, Scotland, Wales and Northern Ireland”, adding that “the Channel Islands and the Isle of Man are classed as foreign”.

So, as a freelancer working in the United Kingdom, any money you receive from sources outside of England, Scotland, Wales or Northern Ireland is classed as foreign earnings, as is any money received from the Channel Islands or the Isle of Man.

 

According to the UK government, foreign income encompasses any:

  • Wages from an overseas job
  • Foreign investment income (e.g. dividends or savings interest)
  • Rental income from property overseas
  • Overseas pensions

 

However, all we’re concerned about in this article is the income you’re generating from freelance work via clients in countries outside the UK.

Understanding how to pay the necessary income tax on these foreign earnings all comes down to your tax residence status – so now, let’s take a look at what this means in more detail.

 

What is a tax residence status?

In a nutshell, your tax residence status determines which country you should be paying income tax to. A UK freelancer, for example, will pay income tax to HM Revenue & Customs (HMRC).

Working out whether or not you need to pay tax on foreign income depends on your UK residence status. If you’re not classed as UK tax resident, you won’t typically be required to pay tax on foreign earnings.

However, if you are classed as UK resident, you will need to pay tax on your foreign income – unless your permanent home is overseas. To establish your tax residence status, you’ll need to take the Statutory Residence Test.

 

What is a Statutory Residence Test?

A Statutory Residence Test (SRT) determines what your residence status is, largely dictated by how many days of a UK tax year you spend in the country.

 

To be classified as UK resident you must either:

  • Spend 183 days or more in the UK during the tax year.
  • Have your only home in the UK (which you must have owned, rented or lived in for a minimum of 91 days and spent at least 30 days at during the tax year).

 

You will be classified as non-UK resident if you’ve either:

  • Spent less than 16 days in the UK (or 46 days if you have not been classed as UK resident for the three tax years prior).
  • Worked overseas full-time and have spent less than 91 days in the UK, of which you were working no more than 30.

 

If you think you are required to pay tax on foreign income, don’t worry because it couldn’t be any easier. You simply include it in your Self Assessment tax return to HMRC.

If you move in or out of the UK during the tax year, you’ll be covered by something called ‘split-year treatment’. This means you’ll only be pay income tax on foreign earnings during the time you were UK resident.

However, split-year treatment won’t apply if you’ve lived overseas for less than a full tax year before returning to the UK.

 

What happens if I’m taxed in more than one country?

As we mentioned earlier, there are preventative measures in place to stop you being taxed in more than one location. Should this situation arise, the problem can (very likely) be solved – so fear not!

If you find you have been taxed by the country where you’re being paid from as well as the UK government, you may be eligible to receive Foreign Tax Credit Relief (FTCR). FTCR will enable you to get all or some of your foreign tax back in the form of tax relief.

How much you’re able to claim back will depend on the parameters of the UK’s ‘double-taxation agreement’ with the country you’re being paid from.

 

Reasons why you might not get the full amount of foreign tax back are:

  • If a smaller amount is outlined in the country’s double-taxation agreement.
  • If you’re income would have been subject to a lower tax rate in the UK.

 

These are just the basics of FTCR and hopefully you won’t find yourself dealing with a double-tax scenario but if you do, head to the HMRC website where you’ll find a whole host of additional information to help you.

Ready to take your freelance expertise global? Good on you! We’re right behind you, cheering you on all the way! Find more guidance and advice for freelancers, from those in the know.

Perfecting Your Freelance Pitch on Talent Sites

As a freelancer, securing work is no linear process. Sometimes jobs trickle in while you anxiously twiddle your thumbs. At others, multiple clients contact you at once wanting work done immediately.

Sources of freelance work can be wildly diverse too. Some jobs come via word-of-mouth or courtesy of your trusty book of contacts. Others might be the result of scoping out professional media platforms such as LinkedIn.

Other potential sources of freelance work are talent sites like Fiverr, Upwork ,and PeoplePerHour – just to name a few of those that are currently popular. But to get the most out of that type of platform, you need to be pitch perfect. And no, we’re not talking about your dulcet tones to stay ahead of the competition and turn heads amongst prospective clients.

Using freelancer talent sites means that your profile needs to be the perfect pitch for every client:

  • Focusing on what your skills are, and what problems you can solve for clients, or needs you can fulfil.
  • Using faultless formatting, grammar, and clarity. Its YoUr FiRsT iMpRessionn!
  • Being honest about your experience, because lying to impress someone never impresses anyone.
  • Being truthful about any gaps in skills or experience you might have.
  • Including other skills which compliment your portfolio.
  • Keeping your online profiles professional, and up to date.

 

Six ways to fine-tune your freelance pitch for talent sites

Now, let’s take a look at each of these in more detail so you can become a pitching pro.

 

1. Talk less about yourself and more about the client

This might seem odd, considering it’s your pitch about your work. But, realistically, all the client wants to know is how you’re going to solve their problem, and how fast you can do it.

Naturally, they’re going to want to see you’ve got the skills and experience to fit the bill, but you’ll have greater appeal if you position this as a solution designed for them.

This is trickier to achieve on a talent site where you aren’t likely to be pitching to a specific client or brief straight off the bat, but it can be done. For example, if you have a wealth of copywriting experience for small businesses setting up websites and writing marketing communications, pitch yourself as a solution for this type of startup venture.

Acknowledge the client’s needs or their problem first, promote your services as the solution after. It will help you resonate well with your audience.

 

2. Make sure format, grammar and clarity are all on-point

It goes without saying, but we’re going to say it anyway to really hammer the message home. Correct spelling, accurate grammar, clear formatting, and concise communication of information is essential if you’re going to stand out.

Proofread meticulously, have somebody else cast an eye over it, and if writing isn’t your thing, lean on tools like Grammarly to rule out the possibility of errors that can make you look lax, lazy, or subpar against your competitors.

Confusing readers or overlooking mistakes will send clients sharply in another direction instead of reeling them in.

 

3. Be honest and genuine about your experience

When sharing your skills and experiences, make sure you’re only telling the truth. Lying, or even just embellishing reality, might turn heads initially but won’t stand you in good stead in the long term.

Everything you’re sharing about yourself should be genuine and authentic. You’ll find this boosts your confidence when pitching your services too, because you’ll do so with greater authority.

Talking up false information is a surefire way to compromise your confidence and set client relationships off on the wrong foot. Particularly when you get caught out!

 

4. Be open and transparent about your weak spots

On the flip side, it’s also important to be completely honest about any gaps in your skills, knowledge or experience that might impact your ability to fulfil a brief.

You might not necessarily broadcast this in your public pitch, but once conversations with potential clients start flowing, be upfront about any areas you might be lacking in. It’s better to communicate this early on in the relationship and manage expectations, rather than lie to impress and land yourself in a sticky situation further down the line.

It might be the case that the client takes you on as a freelancer and simply outsources other parts of the project. As the old adage goes, honesty is always the best policy, and it’s the foundation of longstanding professional relationships.

 

5. If you’ve got it, flaunt it

Don’t forget that the point of the exercise is to make sure your portfolio and relevant skillset are front and centre. But, if you have other benefits in your arsenal, make sure to give them a share of the spotlight too.

For example, if you can speak another language, or if you have additional certifications or qualifications, be sure to include those as part of your pitch as well. It will do a lot to bolster your appearance as a well-rounded and experienced professional.

 

6.  Regular housekeeping of your online profiles is the order of the day

Once you perfect your talent site freelance pitch, it’s essential to take care of it as you develop and grow. Doing so will speak volumes about you as a professional.

This involves keeping things like your contact details, availability and rate card up to date, as well as ensuring your profile picture is recent, of good quality and platform-appropriate (so no low-res images of you crowdsurfing at a music festival ten years ago).

It’s also a good idea to keep your pitches fresh and relevant by regularly scheduling in some time to update your portfolio and tweak the content wherever necessary.

This will ensure your talent site profiles never stagnate or become so outdated that bringing them up to scratch is a mammoth task that you continue to dodge.

Now all that’s left for you to do is go out there and pitch like you really mean it. Good luck!

Don’t forget to check out our How to Become a Freelancer section too!

Self Assessment Tax Returns Explained for Freelancers

So you’ve become your own boss – big congratulations! But whether you’re embarking on a side gig or freelancing full time, taking this new and exciting step can also be pretty scary.

One thing lots of new freelancers struggle to get to grips with are their tax liabilities. So we’ve put together a quick guide for freelancers on all things Self Assessment and tax returns to hopefully make things easier.

 

First off, what type of freelancer will you be?

The vast majority of freelancers will be sole traders. In fact, sole traders account for 60% of all UK small businesses.

The beauty of being a sole trader is that it’s incredibly easy to set up. However, effectively you and your business are the same entity, so should your business fail you’re also responsible for any debts or liabilities.

To get round this, some freelancers decide to set up as a limited company. This is especially appealing to those who want to keep their business debts and liabilities separate to their personal ones. You essentially become your own business’ director/employee – and yes, it’s more complicated than being a sole trader.

If you do go down this route, you’ll need to be aware of what this means for both your personal tax and your business’s tax. Do your homework and choose the path that’s right for you. But for this article, we’ll generally be focusing on sole traders.

 

Setting up as self-employed

Most freelancers decide to operate as a sole trader, so the first thing you’ll need to do is tell HMRC by registering for Self Assessment on the HMRC website. You’ll also need to register for Self Assessment if you’re the director of a limited company.

Be mindful of the registration deadline. You must register by the 5th October in the same calendar year that your first freelancing tax year ends.

Example:

The tax year starts on the 6th April each year. So say you became a freelancer in December 2020, your first tax year will end 6th April 2021, and you’ll need to register by 5th October 2021.

Once registered you’ll get a 10-digit Unique Taxpayer Reference (UTR), and will be able to access your personal online account ready to file your tax return when the time rolls round.

 

What are the important deadlines and dates for Self Assessment?

As mentioned, the UK tax year runs from the 6th April until the following 5th April. So the current tax year started on 6th April 2021 and will finish on the 5th April 2022.

You must make 2 payments on account each year unless:

  • Your previous Self Assessment tax bill was under £1,000
  • You have already paid 80% or more of all the tax you owe

Each payment is half your previous year’s tax bill. Payments are usually due by midnight on the 31st January and 31st July.

 

How much tax do I need to pay?

When you’re employed, your employer sorts out your tax and NI contributions for you every payday. As a freelancer it’s up to you to pay the right amount of tax and National Insurance. The amount that you pay is based on how much profit you make. Your profits are what’s left over from your self-employed earnings once you deduct any allowable expenses.

Like people who are employed, you can earn up to the Personal Allowance threshold (currently £12,570) before you need to start paying any tax, though you’ll still need to report your earnings, and pay NI.

Anything you earn over that threshold will be taxed according to how much profit you make. Tax is paid in tax bands, or thresholds, so you might pay one tax rate for money you earn within one bracket, and then a different tax rate for money which falls into a different bracket.

Basic rate: 20% on earnings between £12,570 and £50,270

Higher rate: 40% tax on earnings between £50,271 and £150,000

Additional rate: 45% on earnings of £150,000 or more

There are two extra bands for people in Scotland. See the government’s Income Tax in Scotland page for more information.

Hint: Put aside the cash in a separate account for every job you do!

 

Get it done sooner rather than later

We always recommend filing your Self Assessment as soon as possible (not least so you can get it out of the way and focus on business). Filing early also has other benefits, which we explain below.

 

Plan your cash flow better

Once you’ve worked out what your tax bill will be, it’ll be easier to see how much cash you really have. Being able to forecast your immediate and mid-term cash needs and expenses are an important part of running a successful business.

Knowing exactly how much your tax bill will be means you can ensure you have the right amount put aside. And if you think you may struggle to pay, it gives you time to contact HMRC and sort out a payment plan, rather than panicking at the last minute.

 

More time to prepare

Getting all the figures and evidence together for your tax return can take time, especially when you’re already busy. But by getting it done early you can do it in your own time, and in bitesize chunks, reducing the chances of problems and errors.

 

No missing the deadline!

Filing your tax return late is not a great move. Firstly, you’ll be hit with an automatic £100 filing penalty, regardless of what you owe. If it’s still late after 3 months, a late fee of £10 a day (up to a maximum of £900) will be applied.

After 6 months things get really expensive, with a penalty of £300 or 5% of your tax due (whichever is higher). This will happen again if it becomes over 12 months late. All of these penalties are one of top of the other, not in place of. It really does add up, which again is why you should contact HMRC (or your accountant) as early as possible if you’re worrying about how to pay.

 

Where can I find more information?

There’s a wealth of information about all this and more on the government’s Self Assessment tax returns pages. Don’t forget to check out our How to Become a Freelancer section too!

Your Freelance Work and Trading Standards

As an employee of a business, trading compliance is probably not going to keep you up a night (unless that’s your actual job). However, when you’re a self-employed freelancer, you’ve got to protect your livelihood and professional reputation.

As a one-person band, the onus is on you to ensure that you’re always toeing the line when it comes to tax deadlines and Trading Standards. But what exactly does Trading Standards means for you?

 

What are Trading Standards?

Trading Standards, as we know them today, are a government service which sets out to safeguard consumers against any trading of goods or services that is:

  • Unfair
  • Unsafe
  • Misleading
  • Unethical
  • Illegitimate
  • Illegal

They hold businesses and service providers accountable to the legal standards which they must adhere to. If they don’t, customers are within their rights to report them to Trading Standards.

 

What do Trading Standards do?

Trading Standards were originally known as the Weights and Measurements Department. This was because the department was responsible for ensuring the consistent integrity of commercial weighing and measuring.

Over the decades, the department absorbed more responsibility, dealing with more Acts, Orders, and Codes of Practice as time went by. The department expanded as a result, and began working more closely with other regulatory bodies, eventually becoming the Trading Standards we know today.

 

Can a freelancer be reported to Trading Standards?

Yes, anybody offering goods or services to consumers can be reported to Trading Standards if the customer feels that there’s a reason to do so. Common reasons why somebody might report a business to Trading Standards include:

 

  • Feeling misled – If a customer receives a product or service that doesn’t align with what was advertised to them, they may feel misled into purchasing under false pretences.

 

  • Being left in danger – Customers left in danger or at risk of physical harm as a direct result of your product or information can complain about you to Trading Standards. This is also true if you do not complete a project and this means the customer is left in a compromising situation.

 

  • Fake or counterfeit goods – Where a customer purchases branded goods that they believe will be authentic at the time of sale but what they actually receive are counterfeit or fake.

 

  • Undue pressure to purchase – Because the customer feels unnecessarily pressured into purchasing goods or services against their will or better judgment.

 

Tips to avoid trouble with Trading Standards

Staying out of trouble with Trading Standards is mostly down to common sense and being reasonable. But where your business and livelihood are concerned, it can never hurt to be cautious.

 

Don’t overpromise or exaggerate

When trying to get a new client over the line or win a new project, it can be tempting to say whatever it takes to seal the deal. Overcommitting or inflating what you can offer will only leave you open to the risk of customers feeling misled or undersold though.

 

Avoid too many hard sell tactics

Again, when trying to secure or retain clients, try to avoid overly persuasive sales and marketing tactics that could be misconstrued as forceful or pushy. If a client says no, respect their decision and move on without trying to twist their arm.

 

Be open, honest and transparent

The best way to avoid any miscommunication or misunderstanding that might lead to a Trading Standards report is to be authentic and honest with your clients. As long as you remain genuine and true to your word at all times, you shouldn’t find yourself running into any trouble.

 

Put contracts in place with clients

As well as having honest communications with your customers, it’s also best practice to get any agreements down on record. Having both parties sign a contract helps you manage expectations, and will be a valuable resource to refer back to in the event of any queries or issues.

 

Never leave a project incomplete

This one goes without saying but to avoid any disgruntled customers making a beeline for the Citizens Advice Bureau, always see every piece of work through to completion, even if you hit some hurdles along the way.

Now that we’ve demystified the topic of freelance work and trading standards a little, hopefully you can continue providing your (fair and legal) services with utmost confidence.

 

Visit our information and resource hub for more freelancing tips and advice, including how to deal with your accounts and tax.

Starting Up A Business Straight After Full-Time Education

If you’ve landed on this article then we’re guessing you’ve just wrapped up (or are about to wrap up) your full-time education and are now chomping at the bit to get out into the big, wide (working) world.

First of all, congratulations! We hope all of the essays, assignments, and sleepless nights were worth it. You’ve no doubt made some memories and friends that will last a lifetime but now’s the time to flaunt all those new skills you’ve acquired and put them to good use.

We’re going to make a second assumption based on the fact you’ve clicked through to this article and that assumption is that you’re buzzing with entrepreneurial spirit.

So if we’re right and you’re ready to hit the ground running on starting up your first business post-education, keep scrolling because we’ve got some invaluable advice to steer you in the right direction.

 

Advice for starting up a business after school, college or university

Here are five of our top tips for those looking to start a business after full-time education.

 

1. First and foremost, safeguard your financial security

Unless you’ve got a cushion of cash underneath you or dedicated finances ready to invest, you might realistically need to think about a period of employment before diving head-first into business ownership.

Even if it’s just part-time employment, plenty of successful entrepreneurs began their ventures as a side hustle. That way, you can make sure you’re financially secure whilst building your empire. It’s usually absolutely fine to work as a self-employed person whilst also being employed – just check your contract!

Once you do have some spare cash to invest in your business idea, we recommend hiring an accountant to help get your bookkeeping and accounts on the straight and narrow. This will help ensure you’re well-positioned to deal with things like taxes, budgeting and funding too.

 

2. Dedicate some serious time to meticulous market research

Another crucial thing you need to do before setting any wheels in motion is to carry out some thorough market research to establish the demand for what you have to offer.

Does it already exist? If so, is there a way you can do it better or different? If not, does that potentially mean there isn’t an appetite for it? Answer these questions for yourself before getting in too deep.

 

3. Now’s the time to start growing your network

Hard work and ambition are vital components to entrepreneurial success, there’s no doubt about that. However, a solid professional network can make the difference between coasting or skyrocketing.

Networking and growing your contacts is something business owners should be doing constantly, throughout their entire professional journey but when starting out, it’s more vital than ever.

As the old adage goes, “it’s not what you know, it’s who you know” and while we don’t agree that knowledge comes second-best, there’s certainly a great deal to be said for the company you keep and the connections you make in the early stages.

 

4. Talk (and listen) to those who’ve done it all before

You’ve got big ideas, even bigger dreams and a clear, determined idea of how you want to get there; we get it, you don’t want to listen to anybody telling you what to do.

However, listening to and actively seeking out conversations with people who have either succeeded or failed at starting up a business can provide you with an invaluable conduit of knowledge and insight.

Treat these people as your mentors where possible. Absorb every tip, every piece of advice and every “if I could go back now, I’d do it this way…” suggestion like a sponge.

You’ll make enough of your own mistakes along the way so take advantage of the lessons others have learned from theirs while you can.

 

5. Accept failure and mistakes as a natural part of the process

Fresh out of full-time education, you’re likely still in the mindset that full marks and top grades are the only way forward. But guess what? Things are different now.

When it comes to starting up a business, there’s plenty of room for error. We’re all human and mistakes are totally normal – it’s all about learning to adapt, recover and make better decisions moving forward.

Oh and don’t compare yourself to others. Starting up a business looks different for everybody; there’s no linear, right or wrong path to take. Focus on yourself, stay in your own lane and don’t get distracted by what anybody else is doing around you.

Right, now you’ve got our pearls of wisdom to add to your own skillset and entrepreneurial spark, it’s time to grab that bull by the horns. Good luck, go get ‘em!

 

Don’t forget to check back in here for all your latest freelancer news and advice, or visit our info hub for help getting started in freelancing.

Can I Freelance in the UK for Overseas Clients?

As a UK-based freelancer, you are indeed allowed to work for clients in a different country. In fact, for many, the freedom to expand your geographical network is one of the most appealing things about working in a freelance capacity.

Something you will need to take into consideration though, is your tax residence status.

What is a tax residence status?

A person’s tax residence status is basically used to determine which country they should be paying income tax to. A British person working in the UK, for instance, will most likely pay tax on their income to HM Revenue & Customs (HMRC).

Though it can sometimes be confusing, it’s important to get to grips with your tax residence status. It will help you avoid any sticky situations, such as failing to pay the tax you owe or on the flip side, paying tax on the same money but in both countries.

To find out your tax residence status, you will need to take a Statutory Residence Test.

The results are determined by factors such as how much time you’re spending where, and what your connection is to each country in question.

How can I freelance for foreign clients?

Whether you’re planning on taking your skills for a trip around the world, or you have overseas clients on your books already, there are some processes worth honing! We’ve gathered some of our tried and tested tips for freelancing when clients are in a different country.

Remember, you’ll need to work around time differences

This might sound like an obvious one, but it’s easy to let an exciting brief with a handsome budget blind you into forgetting about the logistics.

Get excited, but just don’t forget to consider how you’ll manage any collaboration if your time zone is at odds with theirs. Is it going to work around your other clients? Will it fit in with your personal schedule? If you need to work unusual hours to be available for any meetings, is this realistic?

As a freelancer you probably already go through this process at the start of each project, but adding the time difference in can’t hurt!

Put a contract in place, and consider which laws apply

Contracts between freelancers and clients are already fairly common, and definitely best practice, no matter where in the world both parties are located. It’s even more important if you need to safeguard against the potential pitfalls of international freelancing.

Language barriers and cultural differences can lead to confusion and mismatched expectations. Putting a contract in place for both parties helps you to manage these, and make sure everybody is on the same page. It’s also a good way to make sure there aren’t any legal issues that might trip you up later. For instance, any licenses or permissions you might need to collaborate.

Don’t forget about exchange rates when discussing costs

Again, this might sound like another obvious statement to make but when it comes to the topic of costing and quotes, remember to factor in exchange rates between currencies. Calculate these beforehand and then price accordingly. Include the exchange rate on your quote, and make it clear that the invoice total might be different depending on fluctuation currency exchanges.

Failing to do so might mean you end up falling short of what you were hoping to cash in, and open the door to some awkward conversations between you and your client.

Invoice in your local currency

Even though it’s essential to factor in exchange rates during your costings and quote process, it’s advisable to invoice in your local currency. It will make your tax return far simpler, too! Consider using bookkeeping software like Pandle which includes a built-in real-time currency exchange rate tool to make multi-currency invoicing easier!

Set up a money transfer account

Taking advantage of a money transfer account isn’t completely necessary but it sure can make your life a heck of a lot easier.

International cash transfers – without the help of a transfer service – can result in high transfer fees being incurred, and will also take longer to process.

Implementing something like this into your process means you can reduce the headache of expensive transfer fees and have cash in your bank much quicker.

Popular money transfer services include:

  • Wise (formerly TransferWise)
  • Remitly
  • PayPal
  • OFX
  • Western Union


Consider introducing a deposit system (if you don’t already)

Working with overseas clients doesn’t have to be complicated but it does add an additional layer of consideration. To cover your own back, you might think about asking the client for a deposit – this could be 50% of the total bill before completion and 50% after, for example.



You may very well already be doing this but if not, now might just be the ideal time to start! Find more help and advice in our freelancer information hub.

Is My Labour an Allowable Expense?

Whether or not you can classify your labour as an allowable expense comes down to how you pay yourself from the business, and that depends on what type of business structure you have in place.

As a sole trader, any profits that the business makes are yours to keep after paying tax. That means you aren’t able to reclaim the cost of paying yourself as an expense.

If you run a limited company, you are considered separate from your business, meaning you are able to pay yourself a salary as a company director.

Salaries are eligible as an allowable expense, so you can claim this back on the company tax return and lower your corporation tax bill.

You can also take dividend payments, but these are taken from the company profits, after tax, so the company cannot claim these as an expense.

Paying yourself a dividend through a limited company is one of the most tax-savvy ways to take money out of the business thanks to the lower personal tax that is paid on dividends.

So now, to put allowable expenses into a whole lot more context for you, let’s take it back to the very basics:
 

What are allowable expenses?

An allowable expense is something that comes at a cost to your business but is not taxable (exempt from being taxed). Allowable expenses are normally things that are essential to the running of the business, i.e., unavoidable costs, hence why they are eligible for tax relief. If you like things in visual form, this video explains allowable expenses for businesses in more detail!
Anything that applies as an allowable expense reduces the business’s taxable profits, and therefore brings your tax bill down.

So, for example, if your business has an annual turnover of £50,000 but you spend £5,000 on allowable expenses each year, you’ll only pay tax on the £45,000.

Common allowable expenses according to official HMRC guidelines include things like:

  • Cost of travel – tickets, mileage, fuel, and parking (excluding standard travel to and from work).
  • Costs associated to employees – salaries, bonuses, and pension contributions.
  • Uniforms and safety clothing (not your everyday work wardrobe).
  • Bills including phone bills, utility bills and rent payments.
  • Items you buy to resell (e.g., stock and raw materials).
  • Advertising and marketing, such as website running costs and business cards.
  • Business-related training courses.

It’s worth noting here that if you use the £1,000 tax-free trading allowance, you will not be eligible to claim expenses.

The trading allowance enables a sole trader to earn up to £1,000 in self-employment income tax-free, without needing to submit a Self Assessment return. However, if you use your trading allowance on your tax return, you can’t then claim allowable expenses. It means it’s important to work out all your expenses in advance, so that you can use the one which gives you most tax relief!
 

What allowable expenses can a freelancer claim for?

There are a number of allowable expenses that freelancers can claim tax relief on, particularly if you spend a great deal of time working from home (which might be now more than ever, post-pandemic).

Allowable expenses when working from home for freelancers include:

  • Council tax payments
  • Rent or mortgage interest
  • Phone/mobile usage (including data)
  • Internet connection
  • Utilities (heat, electricity, water)
  • Property insurance
  • Repairs and maintenance of business-related areas of the premises

For things like utility bills, internet, and phone costs, you can only claim for the portion of the expenses that are directly incurred through business use (not personal use).

HMRC leave it down to you to calculate these portions of usage but falsely swaying it in your favour is a risky move as it will spell serious trouble if you were to be investigated at any point.

As a freelancer, you can also claim for things like:

  • Stationery (including paper, printer inks, etc)
  • Computer software
  • Warranties
  • Accountant and bookkeeping fees
  • Postage costs
  • Business travel costs (e.g., vehicle insurance, fuel, parking, tickets, hire charges, hotel rooms, repairs)
  • Subcontractors
  • Some training courses
  • Agency fees
  • Insurance premiums
  • Some legal and/or financial expenses
  • Lease payments
  • Bank and credit card charges
  • Professional subscriptions

That list is by no means exhaustive either so it’s certainly of great benefit to look into the costs you could be getting relief on.

Hopefully, you’ve found this article useful but when it comes to staying on top of your tax efficiency, you might find it worth speaking to a qualified accountant. They’ll be best placed to point you in the right direction of what you can and can’t claim as an allowable expense when freelancing.

Do I Need a Business Mentor?

Answering this question is tricky because realistically, you don’t need a business mentor. You’re probably perfectly capable of surviving – and thriving! – without one.

That said, the rewards you can reap through working with a business mentor make it an extremely worthy investment – and with many services offering free business mentoring, all it might require is a simple investment of your time and brainpower.

Friends, family, and colleagues are all great sources of encouragement, support and inspiration, but expert guidance is what will really take you to the next level.

The benefits of working with a business mentor include:

  • Broadening your knowledge and skillset
  • Supporting the next generation of talent
  • A chance to learn from the experiences (and mistakes) of others
  • A neutral, non-biased perspective
  • Boosting your confidence as a business owner

All the above come together to foster a much more well-rounded entrepreneur, with the ability to make better decisions when it comes to developing an offering or service. It will do wonders for your self-confidence, which will have a knock-on impact on your performance.

So, to help answer the question about whether you should enlist the expertise of a business mentor or not, let’s look at each of the benefits in a little more detail.
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Freelance Startup Support with the New Enterprise Allowance

Recent times have been tough to say the least. For freelancers and the self-employed it’s been a time of struggle, looking for support amidst the global health and economic crisis of COVID-19.

That’s why we make it our mission to guide aspiring freelancers and budding business owners towards the grants, policies and support avenues that are out there to help them.

Today, we turn the spotlight on the New Enterprise Allowance (NEA), which has been in force since 2011 but is perhaps now more valuable than ever. Read More