7 Steps to Business Start-up
This guide discusses the main points you should consider in the early stages of starting out as a self-employed art practitioner, designer or creative business.
Some content on Artquest pages has been commissioned from independent authors who retain copyright in their works. Artquest is not responsible or liable for any claim for loss or damages, direct or indirect, arising out of third party copyright infringement. This web guide was last updated: November 2018
Why and when to start a business?
Many arts practitioners, designers, and creative business owners within the arts and design spectrum have an uneasy acceptance that to earn a living you must trade.
If you have not made any contacts in the art and design sectors, then things will simply ‘not just happen’ for you. To earn a living in the visual arts a change of mindset has to be realised. In order to legally sell artworks, products, services or undertake commissions you have to register as self-employed.
Many artists and designers make a living from a mixture of sales, commissions, workshops, teaching, arts administration, residencies, monetising online content and other creative work such as freelancing. Establishing yourself and gaining recognition is aided by being a bona fide business.
You have nothing to fear from self-employment if you take time to understand how to go about it and keep appropriate records. Many artists and designers find themselves better-off gaining self-employed status as it allows them to establish their arts or craft practice, grow a business and apply for short-term opportunities. However, if you are not earning very much income from your arts practice and just making ad-hoc sales, you might not need to become officially self employed. (See Step Seven)
Organisations such as local authorities, arts organisations, creative firms, businesses, agencies, shops, galleries, schools, colleges and universities cannot legally pay artists and designers unless they have self-employment status and can provide a Unique Tax Reference (UTR) number, which you receive once registered via Her Majesty’s Revenue and Customs (HRMC) as a sole-trader.
An added bonus to being self-employed is that you can claim back a huge amount of expenses against your tax bills by simply recording expenses, in the form of receipts and invoices when purchasing materials and services necessary to your business activities. Please leep paper receipts, print out receipts for online purchases or at least store digital copies of purchases together in a folder.
In the early years or in difficult times you might end up not paying any tax at all on your self-employed income. Indeed if you have a job and make a loss on your business activities you can ‘off-set’ any trading loss against tax paid on your employment and thus receive a welcome reimbursement in the form of a digital transfer or cheque from Her Majesty’s Revenue and Customs, HMRC.
In this guide and elsewhere on the Artquest website the majority of organisations and websites listed also have presences on Twitter, Facebook or Instagram. You may find it is useful not only signing up to eNewsletters but also following your favourite organisations via social media.
How to go about it?
Despite the benefits, registering as self-employed (as a business) should not be rushed into unless you have started to sell work, or be paid fees for any other freelance work such as undertaking workshops, commissions or assisting others.
It might be advisable to register with HMRC as soon as you start spending money on your business, such as buying materials, making samples, paying for business start-up courses, photography, setting up websites, printing market materials, etc.
The rules about how and when to register as self-employed have changed. If you are already earning money and haven’t registered then see if you need to by reading Step Seven: Registration.
A number of recent arts graduates may be surviving on a mixture of welfare benefits and part-time work, and stepping into official ‘trading status’ can be a big step.
Remember: it is perfectly legal to be an ’employee’ of an organisation or company (e.g. having a part or full-time job working in a shop or restaurant) and be self-employed at the same time.
It’s important to be aware of the term ‘business’ some creatives prefer to refer to themselves as being ‘self-employed’ whilst others may lay claim to the term ‘freelancer’ which really means working for companies as a ‘contractor’ rather than as an ‘employee’ for set lengths of time, hours, days, weeks, months, etc. When you are properly employed by an organisation or business you are covered by employer’s insurance policy and your income tax and national insurance contributions are deducted at source. When working as self-employed or freelance you are responsible for paying your own tax, NI and insurances.
However, even if you do have a full or part-time job, it is wise to read your employment contracts especially if working in hi-tech industries or have specialist roles within larger firms. Usually for most employed work (P.A.Y.E), there are no restrictions on running a business (being self-employed) outside contracted hours.
Many creative people who trade also rely on another source of income from employment. It is useful to have a part-time job during the first years of trading for increased financial support whilst establishing a practice or creative business.
From the moment you decide set up a business or become self-employed, it can be a good idea to allow some time before commencing; this is called the ‘pre-start-up’ period and could last between 8 and 12 months. This time can be used to undertake research and attend business courses. Registering as self-employed is relatively straight forward, though you need to fully understand the process. You should really register as self-employed if you start spending money on your art or design practice, but you have to register by law, which is free by the way, when you start earning any money from sales or other freelance opportunities, see Step Seven: Registration. You may wish to read Step Seven if you are an EU citizen form outside the UK or Non-EU student, are currently on a work visa of have right to remain.
Step One: Research
Research thoroughly how you might become more economically successful. It is beneficial to develop a commercial mindset, even if you are a fine art graduate and produce ephemeral work.
First, investigate your contemporaries and competitors in your market sector, who are they and how did they achieve success
Second, develop a business mindset. This might feel strange at first, but its important to embrace the idea of trading whole-heartedly. It is advisable to seek advice and it is essential you read in to the subject and if possible attend business start-up courses, and other workshops in money management, pricing, fees, legal issues, manufacturing, social media strategies, selling online, marketing and self-promotion.
Third, gain some work experience in arts or design organisations or businesses. This can help you understand how an arts charity, social enterprise or commercial business is run.
Often you would be expected to work for free, but some offer expenses; organisations such as local council-run youth clubs offer a standard amount per evening to volunteers, and galleries generally provide lunch and travel costs. Occasionally, this kind of work can lead to paid employment. However it is arguable that there is a ‘volunteer culture’ within the visual arts. Be wise… find a balance of absorbing valuable experience without being taken advantage of.
Please note at the time of writing employment law is being examined to see how interns can be better protected, from unscrupulous employers, more information and guidance on this matter can be found on the Internship pages of the Artquest website. However, due to the power of social media (and sites like Rate My Placement), many creative industry companies and arts organisations are beginning to offer paid internships at a minimum wage level.
Though we are going through another period of change in regard to the definition of self-employment such as the gig and also the sharing economy, where there is some confusion over income from multiple sources or being paid for work via an app platform. Research is being undertaken by the government and several reports have been written as how to proceed in terms of taxation as employed (PAYE) or self-employed (Self-Assessment). If you are unsure about whether you should be recording particular income streams as trading income then contact the HMRC Tel: 0300 200 3310, an accountant or Tax Aid
Fourth, many artists and designers are able to successfully sell their work from galleries and gain commissions from online shops, social media and portfolio portals.
However making commercial art does not suit every artist and many generate further income from other creative sources such as workshops, residences, community arts, teaching, new technology, working within a creative businesses, arts administration or management.
It is worth bearing in mind that very few visual and applied artists thrive on gallery sales alone. If you in less commercial media, i.e. installations, interventions, happenings, then it is unlikely you will generate a decent livelihood from this form of trade.
Fifth, joining professional organisations, networking, reading e-newsletters social media and job apps or mailing lists can provide vital sources of information.
Sixth, you may find that although you have art qualifications you also have ‘skills gaps’. This can be disheartening, but don’t panic. Spend some time deciding what other skills or qualifications you need. It may be appropriate to undertake Professional Development courses in your subject area (for example learning about arts management or administration), as this can increase freelance work opportunities.
You may discover that learning how to design websites, apps, or use digital 3D modelling software, (rapid prototyping) 3D printing/sintering, or animation techniques will be relevant to your activities. It is an important fact to remember that updating your knowledge and skills is an ongoing process.
A popular option is part-time lecturing or teaching. You will now find an arts degree or diploma is rarely sufficient to teach at adult level within art schools or faculties. It is advisable to either check the job application form or contact the college/university’s Human Resources Department and confirm which qualifications they accept. Most AE/FE colleges now offer new employees appropriate training. It is worth finding out as there are currently several recognised teaching qualifications in adult, further and higher education.
To discover more about the latest developments and qualifications required for adult and further education lecturing posts visit The Society for Education and Training.
Anyone new to teaching short courses at universities or colleges after 2001 may find they are obliged to undertake new certificates in the ‘Life Long Learning’ sector as well undertaking a form of preparation for teaching and development known as ‘Professional Formation’.
For permanent lecturing posts in Higher Education you will be required once in post, if you don’t already possess the correct qualification some form of postgraduate teaching qualification for higher education. You might find that older adult teaching qualifications such as the City and Guilds 7304/7407 Stage One and Two Adult Teacher Training Certificates are viewed as ‘legacy’ qualifications and can contribute towards gaining a Cert Ed or other recognised qualification. There is also the Postgraduate Certificate in Learning & Teaching for Higher Education, a more advance course, for more information visit Prospects and the Advance HE
A note of caution though, lecturers pay is minimal when compared to commercial salaries. When teaching posts in art and design departments are advertised they attract hundreds of applications. If you really wish to teach in art colleges then you need to keep in touch with your lecturers and gain industry experience either by working for well-known art and design figures/enterprises or establishing your art practice or creative business.
Finally, it is also vital that you understand any entitlement to relevant in work benefits and working Tax Credits/Job Seekers Allowance/Universal Credit, see Step Two: Cash Strapped.
Step Two: Cash strapped
Before starting the process of setting up a business we need to think about money.
If you find your debts are getting out of control, thus affecting your credit rating and you would either like to seek help in managing them or find a route out of your problems via a debt-release programme, such as an IVA (Individual Voluntary Arrangement) or a DRO (Debt Relief Order), then contact the Debt Helpline for free advice. It is wise to be on top of fiscal matters before you start a business.
Support on a low income
At the time of writing the benefit system is a state of change. Rules regarding being in work for less/or more than 16 hours a week are still in place in some parts of London and the rest of the country. If this is the case in your local area and you are unemployed or are in work (either employed or self-employed) less/or more than 16 hours a week you may find you can claim state benefits such as Job Seekers Allowance/Income Support and Housing Benefit. However, you must declare your earnings to your Job Centre Adviser.
You can be registered as self-employed and claim other in work benefits, such as working tax credits
The new benefit for ‘in work’ or ‘out of work’ individuals
If you are in a ‘Universal Credit’ area then the situation of being self-employed is far more complicated and at the present time the eligibility criteria is extremely concerning. The current rules appear very confused but it is likely you will get some support if you are self-employed and not earning very much. You can get more advice at the Citizens advice Bureau
To find out if you are in a Universal Credit area and therefore eligible for Universal Credit click here . If you find you are not in a Universal Credit area it means that old 16 hour rule still applies. If not claiming out of work benefits you could be entitled to claim in work support such as working tax credits. (More on this below)
Whether you have just signed on to Job Seekers/Income Support or Universal Tax Credit or have been claiming for a while then it might be helpful to enquire about the ‘Enterprise Allowance’ or other self-employed scheme operating in your area. The programmes last between seven months to a year and can be a very useful steppingstone to establishing your arts or crafts practice, and most importantly getting off Job Seekers Allowance or Universal Credit and pressurised work searches.
It is advisable to fill in your ‘skills gaps’ (See Step: One) by doing some part-time courses before signing up for an enterprise scheme; while setting up you will discover a few other things you need to learn.
New welfare rules may change due to unworkability or a change of government in the future. If you require further advice it is worth contacting either your local Citizens Advice Bureau or visiting the Department of Work and Pensions website.
If you are struggling to pay bills and rent, it may be time to apply for work related benefits. Avoid putting off your claim as it could be many weeks before payments materialise.
Presently the Universal Credit System is not a good or fair system for the self-employed on low earnings, especially if your earnings are not steady and predictable. Though the good news is the Personal Tax Allowance (PTA) is currently £11,850 (2018-2019 rates) which will be of some help to low earners.
At the time of writing the Universal Credit System administered by DWP is still not yet fully in place which was supposed to be merged into the existing HMRC administered Tax Credit system. Please note the government may extend Tax Credits beyond 2019, please check with HMRC for future announcements).
The In-work benefit Working Persons Tax Credit
Applying for working tax credits is quite straightforward if you are not in a Universal Credit area. Working and child tax credits are benefits paid via HM Revenue and Customs (HMRC). HMRC are nothing to do your local council or job centre.
The rules for entitlement are too complicated to explain in a few lines. An illustrative example might be a 25-year-old single designer, self-employed, with no children and working 30+ hours per week. That person would be entitled to Working Tax Credit. If net profits are less than approximately £13,000 per year, they would be entitled to weekly payments week, visit the tax credits calculator to check what you might be entitled to.
At the time of writing we still have working and child tax credits, housing and council tax benefit (Which have to be applied for separately). You can claim these benefits if you are self-employed, are in employment, or are self-employed and in employment, so if you are reading this and are struggling then I would advise making a claim as soon as possible if you are not in a Universal Credit area as it will take a couple of weeks for payments to materialise.
You can currently claim Tax Credits if you are single or as a couple, as long as one of you is a UK or EU citizen, (note this may change post March 31st 2019). If you are from a country from outside the EU, you may still be eligible, please contact the Tax Credit Help Line to find out more. Though the UK voted to leave the European Union in June 2016, entitlement for EU citizens from outside the UK should remain unchanged until 2019. To check for current entitlement either phone the help line or visit the working tax credit page on HRMC’s website.
* Note, if you are currently claiming Housing Benefit, speak to your local Citizens Advice Bureau before contacting the DWP or Tax Credit Help line to make a Universal Credit or working tax credit claim.
Step Three: Seeking Advice & Business Planning
Whether you are receiving benefits or not, it is useful to follow this step.
Contact your local enterprise agency to find your local one either phone the ‘Business Support Line’, Tel: 0300 456 3565 or visit the National Federation of Enterprise Agencies’ website. Please find a list of organisations that support businesses in the Artquest Art Directory.
Enterprise Agencies, some of which are creative industry focused, can offer free or low cost training and advice to start-ups. A small number even distribute small funds or offer loans. It is highly advisable that you attend a short course or seminar at an Enterprise Agency about the issues in setting up before you register. If you are claiming benefits, Enterprise Agencies can still help you. Due to cutbacks over the years the nature of many of the workshops have changed as they are now often sponsored by banks for instance or are no longer free. So you might not appreciate the generic or corporate nature of the workshops. If this is the case you might wish to contact a local creative industries Hub or enrol on a business start-up course more tailored to your needs.
When you decide to go freelance/self-employed you will need some basic knowledge of marketing, social media, accounting, financial and legal matters, tax issues and invoicing. Learning other practical skills such as negotiation and selling are vital. You also need to find out about legal areas such as copyright, contract law, artist resale rights, consumer contracts regulations, trading standards, British Standards BSI, CE Marking, insurances, licences and health & safety.
There is a great deal to learn and this is why seeking advice is vital, not only in the beginning but during your business lifetime, from experienced artists or designers, accountants, business advisers, and solicitors. Much valuable experience can be gained from creative mentoring schemes that run periodically.
The Crafts Council’s ‘Hothouse’ Programme provides 6 months of intensive business support for successful applicants. There are also ‘Hothouse Taster Days’ which are brilliant one day business start-up conferences, to find out more about these events and how to apply for the programme please visit The Crafts Council website.
Writing a Business Plan
If you are starting a business you will also need to write a business plan. Writing a business plan may seem rather irrelevant to the notion of artistic endeavour, but it will make you think through your ideas and identify weak points in the future before they become ingrained in your business. Think of it like this; you wouldn’t start a journey without planning a route, arranging stop-off visits and acquiring money and food. A business plan is like planning for the journey you are about to make in commerce, and it pays to think about it carefully and thoroughly. It could take between six and twelve months to develop one properly. Don’t let the thought of this put you off – many artists and craftspeople develop a new insight to their practice and creative abilities through undertaking this process. Equally, if you plan to form a collective or work as a partnership or form a company it is vital that you and your partners should have an agreed vision for the project or business.
With the interference of technology, such as apps and social media for instance, it can be tempting to start your business by simply reacting to opportunities. It is important to make a proper plan, the route may change as you get going, but it is vital you avoid running your arts practice or design business in a totally chaotic manner. Chaos brings with it many problems of its own, and though all businesses have chaotic periods, it shouldn’t be the default setting!
The business plan must demonstrate that the idea is viable and there is a market/public demand for the artwork, creative product or services. The plan must include detailed research, a promotional and social media strategy, that legal matters are understood, costing, pricing and financial plans, e.g. cash flow or sales forecast for at least twelve months.
During this time you will establish what kind of business you are going to be. For example, you may be a sole trader (individual), a partnership (two to fifty people), a co-operative or a limited company. More information on how to set up an organisation can be found on the Artlaw section of this website, alongside legal advice services that might be useful for businesses
There are numerous online shops and portfolio portals such as Etsy, Axis, Bouf, Not on The High Street, etc. where artists, makers and designers are either selling products directly or showcasing work to attract commissions. These are vital to explore as part of your market research. However, it’s important to understand if you are selling artwork, creative products or services and have started to earn money from these portals then you really should register as a sole trader (aka self-employed) with HMRC. See Step Seven: Registration
There are many useful business start-up courses run by local colleges and universities targeted at creative people.
Central Saint Martins run a number of college based and online short courses in business, promotion and entrepreneurship in the Enterprise and Innovation section on their website or telephone them on 020 7514 7015 for advice. There are also established arts advice organisations that provide free or inexpensive courses for artists such as Artquest (advertised through our Artquest E-news letter), Space Place, Creative England, Creative Entrepeneurs Enterprise Nation and Shape . For more providers, see our Course listings in the Art Directory.
If you are under thirty years old, contact Shell Livewire as they can assist you in the research and funding of your enterprise. The Princes Trust is focusing on helping people who are vulnerable with low academic achievement. However they may still be able to help you if you are in difficult circumstances or have a disability.
Step Four: Funding
Funding for business start-ups can be difficult to find, but with a little research it is not impossible. In 2018 the Arts Council launched a new grants scheme Developing your creative practice which is more focused on supporting artistic development than previous grant schemes.
However the grant culture is not suitable to the nature of enterprise, as business is about making money. Often free money is very handy, but only if it leads to successful economic activities. This is why you need to write a business plan to demonstrate how investment will generate profits.
Enterprise is supported either by loans, with the idea that the lender is paid back with interest or by ‘crowdfunding’ websites such as Kickstarter, Indiegogo or Go Fund Me where people invest for fun or in return for a service, product or experience. For creators who cannot enter in to such arrangements there are loan providers in London that comply with Sharia Law, such as the Al Rayan Bank and most Credit Unions.
If opting to give crowdfunding ago make sure you read the website’s eligibility and Terms and Conditions, the host will require between 3% and 7% of funds raised, you might for some crowdfunding websites have to be a limited company, and remember when you send in your pitch it has to be reviewed before it goes live, this might take a couple or days or even week before it is uploaded to the host website.
Avoid taking out bank loans to avoid debt early on in the business’s life unless absolutely necessary. If need be, use savings or ask family for support. If your family can assist you, try to make a formal arrangement to repay them within a set time-period. It must be clear whether the money is a gift or if they expect to be paid back! However, lending from family members may not be an option. Look over the rest of this section for other ideas.
You can start a business up from scratch using almost any amount of savings. It is advisable to have at least £1,500 – £4,000 in the bank before you launch your business. When you first start trading you may find you don’t make very much money as all your profits are going into promotion, equipment, tools or other start-up costs. Do not underestimate how expensive setting up a business can be; it is not unusual for sole traders and partnerships to make tiny or no profits for the first few years, see the Artquest Funding section for more details and links.
There are several options open to you. After opening a business account at a bank you could apply for a business loan, you will need a business plan and indicate you will be investing money also. It is advisable to use the bank’s business planning software rather than your own version. You could approach your local credit union instead. These are community banking schemes that can offer low interest loans for a few months or years. You can find out where your nearest Credit Union is through your local enterprise agency or check with the ABCUL Association of British Credit Unions. If your application is rejected then contact your local enterprise agency .
Step Five: Opening a Business Account
Once you are happy with your business plan you will be ready to approach a bank to set up a business account. Explore the incentives offered by each of the high street banks, check internet banks and building societies. Walk into any branch and they will give you a binder or folder with useful tips on self-employment and a business plan outline for free. Many high street banks now also offer free personalised business set-up advice. (Though they may not understand the complexities of the Visual Arts and Creative Industries). Equally, you can now set up a business bank via the bank’s website.
It is worthwhile noting that some high street banks do not charge for ‘managing’ your business account for the first year, sometimes offering free banking for up to two years. The financial sections of newspapers also offer good advice on bank, money and comparative deals such as the Guardian’s Money pages. or the BBC’s Money Box programme.
It is not currently compulsory to have a business account in order to be self-employed and run a business. Transactions can be carried out through your personal bank account. However, it is more professional to have a business account and gives you a credible status and it is easier to separate your business and personal expenses. Trading out of one bank account can get confusing. Please note it is a legal requirement for you to have a business account if you are trading as a limited company.
All banks offer online banking and most have mobile apps you can download to manage your account whilst on the move.
For more information on business-start-up bank accounts many price comparison websites such as Money Super Market helpfully do some of the legwork for you.
It is worth knowing that if you use your personal account for business purposes Her Majesty’s Revenue and Customs (HMRC) now has greater powers to examine your personal bank account going back over several years if they suspect wrong doing. If HMRC desires it can investigate your business account should they suspect tax evasion or have other concerns.
You are more likely to be successful in your application for a business account if you do not require overdraft facilities, and you have the support of your local Enterprise Agency. Usually you just walk into a local branch and ask to open an account or apply via their website. You might need a business plan (including images of artwork or products) or evidence of trading such as accounts, promotional materials or letter headed paper. However, it is now the case, as previously mentioned, if you are on the electoral role and have a good credit rating you can open a business account online or over the phone, though various documents which prove your identity would need to be sent through the post or presented at your nearest branch before the account can be opened.
If you are worried about your credit rating you can check it via Experian . Unfortunately a poor credit rating can penalise you from setting up a business account. However Natwest offers a business account to customers with poor credit rating, ask for details about their ‘Foundation’ business account.
Step Six: Seeing an Accountant
It is sensible to have a meeting with an accountant before you start your business. They can talk you through setting up your accounts and advise you about reclaiming expenses from taxable income. You might be able to gain free access to an accountant through your enterprise agency or professional body. For a list of London ‘Arts Friendly’ accountants and more information see Artquest’s pages on Tax, Pensions and Accountants .
Make sure you hire an accountant who is a specialist in the arts or creative industries and are professionally qualified. Meeting with a good accountant saves you time and money in the long run. Having a chat with a ‘mate’ who once did a book-keeping course is not the same. Accountants often offer an initial consultation for free. When selecting an accountant, research carefully into their rates and find one to suit your budget.
It is also sensible to learn about book-keeping and the basics of how the tax system works. There are short courses provided by Professional Bodies, Enterprise Agencies and local Adult Education Colleges. There are useful mini ‘teach-yourself’ accounting guides available from any bookshop, publishers such as Lawpack.
There are also new online accounting and invoicing solutions such as FreeAgent, Xero, and other service providers, which are not free, but could be a useful and viable option to sign up for once your business gets going. Once you have mastered Excel, if you find yourself making lots of sales then this service, which is very popular with creatives, might be worth trying. Providers such as FreeAgent sometimes offer a free trial which is worth doing only if you get busy and are making regular sales.
To check accountants’ qualifications and what their specialist areas are, contact either The Institute of Chartered Accountants, London Society of Chartered Accountants, The Association of Chartered Certified Accountants
Step Seven: Registration
Do I need to register as self-employed?
If you are just earning the odd bit of cash from selling items for instance from Etsy, ad-hoc sales or private commissions, and your total income (not profits) is under £1,000 per tax year then you no longer need to register as self-employed or file a tax return/complete self-assessment unless you have other reasons for doing so, e.g. income from investments, property, etc. However, you still need to keep basic records such as accounts, and retain receipts and invoices, etc.
This £1000 is known as a ‘trading allowance’, and if you find that you do earn more than £1,000 in your first year and decide to register as self-employed, you can opt for this trading allowance to be a tax-deductible sum (i.e. an income tax free sum) if your business expenses e.g. materials, promotion costs, etc. are less than £1000.
What if I already have a part-time or full-time job?
Its possible you have a job for example and are being taxed at sourced, but you can still have a trading allowance of £1,000 without incurring any extra income tax or having to register as self-employed.
What if I start invoicing businesses?
If you start undertaking freelance work, teaching, commissions or other sales which involve invoicing businesses, arts organisations or universities then you should really register as self-employed as below.
When do I need to register as self-employed?
If you are reading this guide and have been earning money from sales or other activities outside regular employment and have not registered as self-employed, then you have to register by the 5th October in the second year of trading at the latest. The Tax year runs from the 6th April to the 5th April, so for example if you start taking payments or selling artworks or creative products in December 2018, you would have until 5th October 2019 to register with HMRC.
However, some artists and designers may have been ‘freelancing’ for much longer than this. If this is your situation then I would strongly urge you to seek advice from Tax Aid or one of the accountants listed on the Artquest website.
It’s advisable to register with HMRC as soon as you exceed your trading allowance through money from freelance work, commissions or sales, etc. Businesses you wish to freelance for may ask for your UTR, i.e. your self-employment number/Unique tax reference, before you start a short contracted period of work for instance, it may look unprofessional not to be able to provide it if requested.
When ready, it is important to register with HMRC, and gain a self-employment number, also known as a self-assessment number or UTR (unique taxpayer reference). In the UK it’s free to register as self-employed.
The process is free and straightforward, if you are registering for the first time, visit HRMC to register as self-employed.
If you are currently registered for self-assessment for other purposes, e.g. investments, income from property, or if you have been self-employed before, then you will still be required to register as self-employed but will retain the same UTR number. Visit HRMC.
Do keep a screen shot of your application, in case there is some data loss, by yourself or the HMRC.
Class 2 National Insurance
The way Class 2 NI is collected has changed. It is now collected at the end of the year as an annual payment, as part of self-assessment (tax return). If your net profits are less than the defined threshold you will not need to pay NI contributions. Please visit www.gov.uk/self-employed-national-insurance-rates for more detail.
Class 2 NI is a personal tax on being self-employed, just as Class 1 is for employees. So this will need to be paid from your personal bank account, not your business account.
Please note if you are a foreign national and not from one of countries in the European Union then you will need to seek advice from an immigration solicitor.
Student and work visas no longer grant Non-EU citizens the automatic right to trade.
Equally there is some worry about the UK’s decision to leave the European Union at the end of March 2019, so I would urge artists and designers from the EU to register as self-employed with HMRC if you wish to stay and trade in the UK, as soon as possible, or by the end of February 2019 at the latest. The current situation about the right to trade for EU citizens may change sometime in 2019 so seek advice and check the www.gov.uk website for further developments.
You will also require a National Insurance number to register as self-employed in the UK. Contact HMRC directly to apply for a National Insurance number.
Please note the HRMC does tend to use much fiscal jargon which at first is confusing, they use phrases such as ‘sole-trader’ and ‘self-employed’ but more usually refer to registering ‘a business’ or for ‘self-assessment’ which in plain English mean the same thing.
Within a few days or weeks of registration you will then be given a self-employment number (aka a Unique Tax Reference) that will enable you to sell your work legally and trade as a freelancer on commissions and short-term contracts. You may be asked by clients for this number but there is no legal requirement to quote it on your invoices. It is not advisable to regularly put your self-employment/Unique Tax Reference on your invoices due to the risk of identity fraud.
Upon registration, ask about the Business Support helpline. Telephone: 0300 456 3565 Due to the special nature of the Visual Arts might be more advantageous to gain advice or attend workshops especially tailored for artists and designers from specialist providers.
Please note it is vital you adhere to the tax deadlines as there are now new and increased fines, you will even be fined even if you don’t make enough money eligible to pay tax. If you are a month late after the final deadline of 31st January each year, the fine is £100, if several months late the fine can shoot up to £900 and more. See the HMRC for more details .
But What If?
When I start trading, even with my part-time job, I hardly make any money? How will I pay my rent?
If you are claiming benefits before you start trading, and/or have a part-time/full time job, you should enquire directly with your local Job Centre and Housing Benefit Office to see if they will continue to pay you what is often referred to ‘Housing Benefit Run On’ which usually lasts for a month after you have signed off and started trading or taken a job. As mentioned previously the benefit system is being bashed about a bit and at the time of writing and the central helpline telephone number has been withdrawn. It might be worth contacting your local Citizens Advice Bureau for advice.
If you have not claimed Housing Benefit before, you may be entitled to it. You will have to visit your local Housing Benefit office or apply online via your local council’s website you will need to submit the form with a number of documents, such as your working persons tax credit calculation (if eligible), accounts, payslips, bank statements, sometimes they ask for a profit and loss account if you have been trading for a year and also a copy of your last tax return (aka self-assessment form) if you have one. (Please note if you are in a Universal Credit area you will need to speak to your advisor at the Job Centre about support with housing costs as it is an all inclusive claim).
Once you have filled your first ‘self-assessment form,’ you will receive a letter from H M Revenue and Customs or online notification stating the amount of money you have earned. This is your profit only (income minus the expenses of running a business) and will happen every year.
If you have filed a return and received this letter or notification then take it with you to your local Housing Benefit office as this can be helpful to them when assessing your claim. Claims can take months to sort out so be prepared to wait. It has been possible to run a business for a few years claiming full or partial Housing Benefit/Council Tax Relief. Housing Benefit is not a taxable form of income, so it does not count against you in any way if you need it claim it.
However, please note as Outline in Step 2, being Cash Strapped the benefit situation is in flux and entitlement rules have changed several times over recent years as the new Universal Credit system comes in. As they would need to be satisfied that you’re genuinely self employed.
If you are struggling or have an ad-hoc income then keep your eye out for news about what is happening to the benefit system. Many artists and designers do not claim any benefits, but most creatives have at some point in their careers signed on, completed a government enterprise scheme or claimed Tax Credits or Housing Benefit whilst they have got going.