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How To Register a Freelance Business: The Definitive Guide

Kyle Prinsloo

Founder, ClientManager

06 Feb 2024

Published On:

You've started freelancing and want to register a business.


So, is it worth the hassle?


Short answer: If you want to grow, yes.


In this article, I’m going to walk you through:

  • Everything you need to know to register a freelance business

  • Why (and when) to do it

  • The exact steps in the process

  • What you can do from there to make your business a success


Here’s what we’ll cover:

1. Do you need to register your freelance business?

2. 7 good reasons to set up a freelance business entity

3. A guide to popular freelance business structures

4. Which freelance business structure is best for your business?

5. How to register a freelance business in the US: step-by-step guide

6. How to register a freelance business in the UK: step-by-step guide

7. Do freelancers need a business bank account?

8. Do freelancers need business insurance?

9. What taxes do you need to pay as a freelancer or freelance business?

10. Creating a business plan

11. Final piece of advice

12. Helpful links & resources


(This article is aimed at freelancers in the US and the UK. I’ve tried to break it down clearly, so you can skip over anything irrelevant for you.)

TL;DR:

Registering a formal business isn't necessary to run a legal freelance business.


But it can bring advantages like:

  • personal liability protection

  • credibility

  • access to loans and higher-profile clients

  • tax benefits.

The default option is being a sole proprietor or sole trader, where you register as self-employed and pay taxes accordingly.


The best formal business structures for freelancers are LLCs or limited companies, which limit liability but require more setup and admin.

Whichever type you go with, know what taxes you need to pay and when.


Now, let’s dive into the detailed version.


Do You Need To Register Your Freelance Business?


register-freelancing-business

Many freelancers start out doing it as a side hustle.


If you’re still an employee and trying out some freelance work on the side, you don’t need to worry about registering your freelance business yet.


But if you’ve been doing this for a while and you’re ready to ditch your day job, then you need to decide if you’re going to register your freelance business.


Registering a formal business is not legally required to run a freelance business.


The main legal requirement is that you are registered as self-employed for tax purposes.

(Yup, all the government cares about is that you’re paying your taxes).


Registering a freelance business in the US:

You need to pay taxes if your gross annual income is $600 or more. But you don’t need to do any formal registration to operate as a sole proprietor.


Registering a freelance business in the UK:

If you’re earning more than £1,000 a year you will need to register with HMRC as a sole trader.


Once your annual profit goes above £30,000 you have to register a formal business (eg. a private limited company).


But even though registering a formal business may not be necessary legally, there are other good reasons to do it.

7 Reasons To Register A Freelance Business Entity


siging-papers-for-business-entity


1. You want to look professional


Imagine you need to go to a dentist for some serious root canal.


Do you go to that guy down the road who mentioned he does some dentistry on the side? Or do you look up registered dental practices in your area?


I thought so.


Setting up an official business communicates a more professional image to potential clients.


Simple concept, but it shows that you take yourself seriously.


2. You want to limit your liability if things go wrong


Limiting personal liability is one of the biggest reasons freelancers register a separate business entity.


When you run a business doing work for all kinds of people, there’s always a chance something goes wrong.


If you operate as a sole proprietor or sole trader, all your assets are treated as part of your business.


This means everything you own is fair game when it comes to legal action or debt collection.


3. You need to raise money through investors or a business loan


There may come a time in your business when you want to scale up or put capital into something big, and you need to raise money from outside sources.


Having a registered business makes this a lot easier.


Whether you need a business loan or want to attract investors, you’ll need to have a formal business entity that looks like it has all its ducks in a row.


4. You want to work with big companies


A lot of bigger companies and enterprises have a bunch of red tape around working with independent contractors.


Whether it’s for tax purposes or ensuring quality standards, many of them will not contract someone without an officially registered business.


5. You want to hire employees


As your business grows, you might want to move into an agency model and potentially hire employees.


Registering your business can simplify a lot of the HR you’ll have to deal with, including the hiring process, setting up payroll, and dealing with employment laws.


6. You want tax benefits


Different tax rules apply to different business structures.


Registering your business can come with a, like lower tax rates in general, or being able to deduct more business expenses and lower your taxable business income.


It can also give you various options for how you pay yourself as a business owner, which can further help reduce your income tax.


7. You want to protect your brand


Particularly in the creative industry, it’s a good idea to have some clear boundaries around your brand and the work you do for yourself and others.


This is a lot easier to do when you’ve got a registered business.


You can prevent people from using or sharing your stuff without permission or proper acknowledgment.

Bottom line: Do you want your business to grow? Deciding whether to register your freelance business comes down to long-term growth.


With a registered business, you have a solid legal and financial foundation to expand, take on bigger projects, and protect yourself if things ever go south.

Popular Freelance Business Structures


filling-out-business-structure

Your next decision is choosing your business structure.


This impacts taxes, liability, and how you operate (including how much admin you’ll have to do).


Let’s go through the most common choices for freelancers:


Sole Proprietor (US) or Sole Trader (UK)


This is the default setup for freelancers starting.


And it’s the most common choice for freelancers in general.


You simply work as an individual providing services, without creating a formal business entity.


All you have to do legally is register as self-employed and make sure you have a personal tax number.


Pros:

  • Very simple to set up

  • Minimal paperwork and admin to operate, compared to other structures.

  • Business profits come directly to you (and must be reported on your tax return).

  • You have full control over how you operate your business.


Cons:

  • No liability protection - your assets are at risk if you get sued or have business debts.

  • Harder to get a loan or raise investment capital.


Limited Liability Company (US) or Private Limited Company (UK)


A Limited Liability Company (LLC) or Private Limited Company (Ltd) is a good choice for freelancers who want to limit their risk in the business.


Setting up a limited company means your business is a separate entity from you as the business owner, but it’s not as complicated as setting up and running a public corporation.


Pros:

  • Your assets are safe - only what's invested in the company is at risk if things go wrong.

  • Relatively easy setup and admin compared to other corporate structures.

  • Gives you more credibility with clients, banks, and investors

  • No corporate taxes with an LLC - profits are passed through to owners for self-employment tax, so they’re only taxed once. (Ltds in the UK must register for corporation tax).

  • Flexible structure – you choose how you want to manage the business


Cons:

  • More admin to set up than a sole proprietorship

  • Startup costs and annual fees

  • More formalities to follow

  • Tax reporting can get more complicated if there’s more than one member


S Corp (US only)


An S Corp is a special type of corporation that’s a good option for freelancers with high incomes who want to reduce their tax burden.


With other types of corporations, profits are subject to double taxation (corporate tax and personal tax).


But with an S corp, you only pay personal tax on the amount you pay yourself as a ‘reasonable salary.’ This can result in pretty significant tax savings.


There are a bunch of pros and cons to weigh up though.


Pros:

  • Potential tax savings

  • Even higher credibility with clients and investors

  • Growth opportunities – issue stock or bring on investors


Cons:

  • More complex and expensive to set up

  • More complex admin and tax reporting

  • Must follow strict IRS rules and formalities

  • Less flexibility than other corporations, eg. limited to 100 shareholders


DBA (Doing Business As)


A DBA lets you operate your business under a different name than your personal name or registered business name.


You can register a DBA together with any of the above business structures.


It’s a simple and low-cost option for freelancers who want to operate under an official business name but stay a sole proprietor / sole trader.


For LLCs and corporations, it can offer more flexibility for branding and marketing.


Pros:

  • Quick and easy to set up - simply register your DBA name at the county or state level.

  • Low filing fees.

  • Can provide some separation between your personal and business identity.

  • Allows you to open business bank accounts and enter contracts under your DBA.

  • Multiple DBAs can be linked to one registered business.


Cons:

  • Doesn’t give you any liability protection - you and your business are still legally one entity.

  • Legal documents and tax filings still use your personal/business name.

  • A DBA alone lacks the status of a registered corporation.

  • Could require multiple registrations if your business operates in different areas.


Which Business Structure Is Best For Your Freelance Business?


analyzing-business-structure

Think about your needs, concerns, and goals for the future of your business:


  • Are you planning to keep going solo or only hire independent contractors for the foreseeable future?

  • Are you ok with personal liability?


If you answered yes to both, then you should probably stick with being a sole proprietor (US) or sole trader (UK).


It keeps things simple, and you can always change your mind if your goals or situation changes down the road.

  • Do you want to protect your liability?

  • Do you have plans to permanently grow your team?

  • Do you want to target big-name clients?

  • (And are you prepared to do a bit more admin?)


Then you should look at registering an LLC (US) or Private Limited Company (UK).


  • Is your business income on a strong upward trend?

  • Do you want to have the clout and growth potential of a corporation without being taxed like one?

  • Are you willing to jump through admin hoops (or pay some people to do it for you)?


Then you’ll want to consider registering an S corp (US only)

You can also read the full SBA guide to choosing a business structure here.


If you're still not sure or have technical questions, it’s best to speak to an attorney or business advisor.


You might be able to access these services for free through local government or state-sponsored entities.


If you’re in the US, check your state’s website here.


If you’re in the UK, check out gov.uk’s list of helpful topics.


How To Register A Freelance Business In The US: Step-By-Step


registering-a-business

Step 1: Decide on a business structure


Decide whether you want to register an LLC or S corp.


(In case you skipped it, see the walk-through above 😊)


If you plan to continue as a Sole Proprietor, you don’t have to complete any further steps.


Step 2: Choose your business name


If you haven’t already got one, come up with a business name that sounds professional and reflects the nature of your business.


Struggling to come up with a good name? Try a name tool or domain generator like Brandbucket (premium) or Looka (free).


There are hundreds of tools out there. (Or just ask your favorite AI to help you brainstorm!).


Of course, you’ll need to check your name and domain aren’t already registered by someone else.


If you’ve already got an established brand, you might just want to tack on the appropriate suffix when you’ve made things official, eg:


SmashingAvos.Ltd.

Step 3: File the paperwork


Time for some admin. Grab your coffee/stress ball/air pods with calming music.


Relevant forms:

For an LLC: Articles of Organization. For an S Corp: Articles of Incorporation.


What you’ll fill in:

Basic info like the company name, address, formation date, and the purpose of the company.


Where to get the forms: They should be available from your state’s secretary of state office.


Or you can go through an online legal company like LegalZoom or Incfile.


These sites offer a free basic service that gives you access to an online form wizard and walks you through the process to get your entity formed.


No surprise, extra support services come with a fee, but it’s cheaper than hiring a lawyer if you want more guidance.


Filing fee: On top of any legal support fees to file your forms, you’ll need to pay your state’s filing fee, which can be anywhere between $100 and $500.


Job done?


Once your forms have been filed, you’ll be notified to confirm your business is now official.


Woop woop!

Step 4: Get your Employer Identification Number (EIN)


An EIN is a 9-digit number the IRS uses to track your business for tax purposes.


You’ll need an EIN if:

  • You register a corporation

  • You’re going to be hiring employees

  • You don’t legally need an EIN if you register a single-member LLC. But it’s a good idea to get one if you plan to start hiring employees soon.


You can apply online for an EIN with the IRS – it’s a free service. All you need to apply is a valid Taxpayer Identification Number.

!! Beware of sites that want to charge you a fee to get your EIN.


How To Register A Freelance Business In The UK: Step-By-Step


registering-business-in-uk

Step 1: Decide on a business structure


Decide whether you want to register as a Sole Trader or a Private Limited Company (Ltd).

(In case you skipped it, see the walk-through above 😊)


Step 2: Decide on your business name


Sole Trader: You can choose whether you want to operate under your name or a business name. You don’t need to do any special registration for a business name. You’ll use both your name and your business name on any official paperwork and business documents.


Ltd: You need to choose a business name to register with the Companies House. The name will need to have “Ltd” or “Limited” tacked on the end.


How to choose a name: Ideally, come up with a name that’s professional and catchy.


If you’re struggling, try a name generator like Brandbucket (premium) or Looka (free).

You’ll need to follow some legal rules for choosing a business name.

Check the Companies House database to make sure your name isn’t already taken or trademarked.


Step 3 (Sole Traders): Register with HMRC


As a sole trader, you have to register with HMRC for self-assessment tax.

You'll need to provide your business name, address, and other identifying information.

Step 3 (Ltd’s): Register with Companies House


All Limited Companies in the UK have to register with Companies House.


The easiest way is to register online.


You can also register by post using form IN01, through an agent, or using 3rd party software.


What you need to do when registering:

1. Nominate a company director and at least one shareholder (if you’re a one-person company, you’ll appoint yourself as both director and 100% shareholder).

2. Prepare a Memorandum of Association – a legal statement signed by the starting shareholder(s) to form the company. Automatically generated for you if you register online. If you register by post, you can use the Memorandum template.

3. Prepare your Articles of Association – written rules of how the company will operate, as agreed by the founding parties. You can write your own or use the standard ‘model articles’ template.

4. Check what company and accounting records you need to keep.

5. Register an official business address, which must be a physical address in the UK (view the other rules for business addresses here).

6. Choose your SIC code – this identifies what your company does. Check the SIC code list here.

Start your online registration here.

What it costs: £12 to register online. £40 to register by post.


Job done? Most registrations are processed in 24 hours. Doing it by post takes up to 8-10 days.

You’ll receive a ‘certificate of incorporation’ with your business registration number.

Step 4: Register for Corporation Tax or VAT


Corporation tax for Ltds: Most companies can register for corporation tax at the same time when you register online with Companies House.


If you weren’t able to, or you’re registering by post or another way, you’ll need to register for corporation tax separately with HMRC. You need to register within 3 months of starting to do business.


VAT for Sole Traders & Ltd: If your taxable income is more than £85,000 pa, you'll also need to register for VAT.

Read this guide for registering for VAT, which you can usually do online.

Do Freelancers Need A Business Bank Account?


bank-building

If you register an LLC or an S corp in the US, or a private limited company in the UK, you are legally required to open a business bank account.


But even if you’re a sole proprietor or sole trader, it’s still a good idea for a few reasons:


  • You’ll come across as more professional, especially when it comes to sending invoices to clients and paying contractors or service providers.

  • Makes your bookkeeping and tax filing much easier, since you’ll have a separate account for tracking all your business income and expenses.

  • Can help protect you from personal liability if someone sues you.


What it costs:

Costs depend on the bank, but many banks offer a free starter account for business owners.


Check with your existing bank first as they might offer it as a free add-on to your portfolio.

Do Freelancers Need Business Insurance?


setting-business-insurance

Business insurance is optional.


Getting business insurance can feel like an unnecessary expense when you're just starting or trying to grow your freelance business.


However, running a business can expose you to a lot of potential legal and financial risks.

You don’t want to get caught with your pants down.


A few common types of insurance cover to consider:


  • General liability insurance - covers any damage your work may cause to a client. Say a website you designed gets hacked, liability insurance would cover the costs to the client.

  • Errors & omissions insurance - covers any mistakes or oversights in your work. For instance, if a marketing campaign you ran failed to produce results, E&O insurance would cover you if you get sued.

  • Property insurance - Covers loss or damage to any business equipment, like if your laptop or phone gets stolen while you’re working at a coffee shop.

  • Disability insurance – Covers your income if you get injured or sick and can’t work. Handy protection if you rely on freelance income to pay the bills.

At the end of the day, you need to weigh up the risks vs. the cost to you and your business.

Research your options carefully.


You don’t have to spend a fortune on insurance, but having the right cover can give you peace of mind and avoid a financial disaster that could hamstring your business.

What Taxes Do You Need To Pay As A Freelancer Or Freelance Business?


tax-papers

Whether you’re registering a freelance business or staying a sole proprietor or sole trader, paying your taxes is your responsibility.


You aren’t working for an employer who automatically deducts tax from your salary.


Tax for sole proprietors (US)


What taxes you pay: Self-employment tax (covers Social Security and Medicare) and income tax on your net earnings. You might also have to pay state taxes, depending on where you’re based.


When to pay taxes: As a sole proprietor, you need to pay an estimated tax on all freelance income each quarter:

  • January 15th (for income earned September 16 – January 15)

  • April 15th – (for income earned January 16– April 15

  • June 15th – (for income earned April 16– June 15)

  • September 15th – (for income earned June 16– September 15)


Your annual tax return must be filed by April 15th each year for the previous tax year.


Important tax forms:

1. 1099-MISC form – this is a legal ‘receipt’ of all the money a client has paid you in a financial year. Your clients are legally required to send you a 1099 form by January 31st I in the next calendar year.

2. W-9 form – this is a record of your personal information that clients can use to complete the 1099 form. You need to send one to every new client. Download it here.


To summarise, you give each client a W-9 and they give you a 1099 form by January 31st. You’ll use all the 1099 forms (or give them to your accountant) to file your annual tax return.

Tax for sole traders (UK)


What taxes you pay: Income tax on your net earnings plus National Insurance contributions.


You have to register for self-assessment tax as soon as you earn over £1000 per year.

If your annual turnover is higher than £85,000, you'll also need to register for VAT.


When to pay taxes: The tax year runs from April 6th to April 5th of the following year. Income tax and National Insurance contributions are included in your Self Assessment tax return, which you need to submit annually:


  • Online returns and the first payment are due by January 31st following the end of the tax year.

  • You may be required to make a second payment by July 31st.

Paying taxes as a registered business


If you register as an LLC, Ltd, S corp, or other formal business entity, your taxes will get more complicated.


Here’s a good beginner’s guide to tax for small businesses in the US.


And here’s a helpful overview of business taxes in the UK.


It’s always a good idea to speak to a qualified bookkeeper or tax professional to help you navigate the tax maze and make sure you’re set up to run your business smoothly.

How to keep good records for tax purposes


However you set up your business, it’s important to keep good records and keep your books up to date for tax purposes.


At the minimum, you need to keep records of all your income and expenses.


Make things easy on yourself by creating a dedicated tax folder where you save copies of all your invoices, receipts, and bank statements, and set a time once a month to make sure it’s up to date.


  • In the US, it’s recommended to keep your records for at least three years.

  • In the UK, you should keep them for at least five years.


If you can’t handle the admin yourself, hire an accountant.


Important to remember: Tax laws change often, so make sure you stay up to date on the requirements for your business where you operate.


Creating A Business Plan


writing-business-plan

A wise man once said:


If you fail to plan, you plan to fail.

You aren’t just starting a freelance business for the sake of starting a business.


You want to get somewhere.

Your picture of success or your big ‘WHY’ might be different from the next guy’s.


But whatever it is, you won’t get there without a plan.

What exactly is a business plan?


A business plan is a roadmap that outlines where you want to take your business and how you plan to get there.


It describes what your business does, your goals, and the strategies you'll use to achieve them.

When you’re starting, your business plan is mostly just for you (and maybe the person you bounce ideas off).


Jotting things down on a napkin is always great when inspiration strikes in a coffee shop. But at some point, you should put those ideas down clearly in a well-structured document. It’s something you’ll keep coming back to and refining as you go.


As time goes on, your business plan will become an important tool to run and grow your business. Example: If you want to get a loan or attract investors, you’ll need to show them a solid business plan.


By the way, if you need help figuring out your freelance goals, pricing, or marketing strategies, I have some helpful guides for you:


How to define your goals as a freelancer

Getting Freelance Web Design Clients: My Top 3 Strategies

How to Get Clients as a Freelance Developer: The Complete Guide

What a good business plan should cover:


  • Company overview – a description of your business and the products or services you provide

  • Profile of your target customers (you may need to do some market research)

  • Marketing & sales plan

  • An analysis of competitors and your competitive advantage

  • Your operations – the processes you use to deliver your products or services (this can include an overview of your team, or how you work with service providers or contractors, if relevant)

  • Your budget and financial projections (keep them conservative)

  • How much money do you need to start up or expand, and how you'll use it?


Check out a variety of free business plan templates here, or download this simple business plan template from Forbes (no signup required).

Tips for writing a business plan:


1. Start simple, but concrete.


Creating a business plan doesn’t have to be daunting.


Just start with the basics:


  • Business description

  • Goals & milestones

  • Target customers

  • Your key marketing strategies.

Aim for 1 page to start with.


You can grow it from there.


2. Keep it readable.


You don’t need to write an essay.


Keep it short, sweet, and easy to read. Stick to short sections and use bullet points.


This is key when you want other people to read it, but also makes it simpler to revise.


3. Know your audience.


Even if you’re just writing this for yourself, for now, keep your ultimate audience in mind.


Imagine the kind of partner or investor you might want to pitch to one day and write for them.

Don’t get too technical with jargon or detailed descriptions, just write in plain language the average business person would understand.

The Final Piece Of Advice…


If all of this feels overwhelming, don’t worry. Everyone has to start somewhere.


Don’t let all the paperwork and technicalities trip you up and delay you starting your freelance business.


In my opinion, it’s best to just get started and learn as you go. That’s how I did it, and it’s how most freelancers do it.


If you’re curious, here’s my story of how I started my freelance business:



As long as you’re doing good work, earning money, and paying your taxes, the rest can be learned and improved on with time.


So don’t procrastinate – focus on the essentials and just do it!


You can always come back to this guide when you’re ready for the next steps to take your freelance business to the next level.


Hope this helps 🙂


PS. Admin doesn’t have to suck. Try Client Manager for free. It’s a simple way to onboard, manage clients, and keep track of everything in one place.

Helpful Links & Resources:


About Author

Hey, I’m Kyle Prinsloo. Founder of ClientManager, StartupStarship & FreelanceFam.

 

I enjoy business and helping people create a business around their desired lifestyle. 

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