One of the biggest concerns many people have about working for themselves is how to avoid legal issues when you become self-employed. If you’ve benefited from the support of corporate lawyers, HR and other teams in the past, it can be scary to think you’ll be solely responsible.
But many problems can be avoided fairly quickly and easily with a little research and preparation. In some cases, you might need specialist advice, but it doesn’t have to be expensive. And if you plan for the cost, it can save you money, and potentially your business, in the future.
Protecting yourself, and your business, doesn’t have to be intimidating or difficult. We’ve provided some areas to cover when you’re becoming self-employed, but it’s important to note any information is for general information purposes only, and is not legal advice. It’s important to consult with an expert who can make recommendations on your individual situation and circumstances.
- Understanding the legal liabilities of your business
- Business websites, client privacy and GDPR
- Contracts and statements of work
- Invoices, payments and tax
- Finding help if legal issues do crop up
When you start self-employment as a sole trader, you’ll be personally responsible for any debts and losses incurred. But while operating as a limited company legally separates your personal finances, it involves specific responsibilities. And various products and services might still require a personal guarantee, making you liable if payments are missed, for example.
Few people enjoy reading the small print when they’re looking at business financing, for example. But it’s important to check you’re not agreeing to be personally liable if your company fails to make a repayment on time.
You should also know and understand any legal responsibilities for specific industries and occupations, whether that’s professional accreditation, licensing via a local authority, or health and safety standards required to operate. If you’re planning to take on employees and subcontractors now, or in the future, then you should take this into account when you’re researching your business set-up and obligations.
Some freelance occupations have a legal requirement for specific insurance cover. And most self-employed professionals will need to investigate policies for professional indemnity, public liability, business equipment and more. We have a section dedicated to insurance advice, along with partners offering specialist cover at discounted rates for IPSE members.
The benefit of doing things properly from the start is that you’re able to spend more time on growing your business for the future and less time dealing with problems which are inevitably more complicated, and more expensive, to solve if they’re discovered later on. The worst potential outcome of skipping due diligence is having to shut down an otherwise successful business for an issue which could have been easily avoided.
The regulations regarding website users and client or customer privacy are constantly evolving. But the main things you need to think about will be:
- Cookie legislation (covering the acceptance of cookies by website visitors, which are used by a variety of website software including analytics, advertising etc)
- Trade descriptions (presenting your products or services accurately)
- General Data Protection Regulation (covering the storage, protection and usage of client and customer personal data)
It’s also worth knowing both how to avoid copyright infringement as a freelancer, so you can advise clients on how to avoid problems and ensure you don’t make any mistakes on your own website or social media. And also, how to tackle copyright infringement if someone copies your work, or client assets.
Having good standards of data security and privacy for yourself and your clients doesn’t just prevent any issues with GDPR. It also means you’ll be able to minimise disruption if anyone attempts to maliciously hack your website, any software provider you use is subject to a data leak, you lose your phone or laptop, or even have your home office broken into.
Best practice includes using unique, secure passwords for different accounts, maintaining antivirus and antimalware software, and using an encrypted virtual private network (VPN) if you’re connecting via public Wi-Fi or networks in a café, workspace or during your commute. If you just need to charge your devices from a public USB socket, consider investing in a cost-effective USB data blocker.
You should always have an agreement in place before working with anyone, including friends and family. Not only will they set expectations and offer legal protection, but they’ll also prevent misunderstandings and issues potentially damaging your personal relationship with clients or relatives.
It’s easy to misremember a phone conversation, miscommunicate timescales, or find that clients forgot to include some tasks. Putting everything in writing gives everyone the chance for clarity, and if things change, it means you’re able to refer back to your contract or statement of work and negotiate additional time and payment for anything being added to your task list.
A statement of work or freelance contract will need to be specific for your occupation or industry, but some things to include are:
- The scope of work
- Payment terms
- Changes, edits, drafts
- The process for contract changes
- Legal disclaimers and terms
IPSE members can access a useful Statement of Work template which can be quickly and easily adapted to any project. And in addition to seeking specialist advice when you first set up your contract agreements, or if you’re dealing with a particularly tricky negotiation, you can also access discounted contract reviews.
This will help to make sure your contracts and working practices fit within IR35 regulations. And having an agreement in place will also make life easier if you find yourself chasing payments or taking legal action to claim money from non-paying clients.
Whether you’re looking to become wealthy from self-employment, or want to build a sustainable income on your own terms, managing your finances and cash flow will be essential. And while we have a range of detailed advice on financial wellbeing, from saving money to taking out a mortgage as a freelancer, the three main areas for legal complications tend to be invoices, late payments and tax.
If you have contracts in place, invoicing should be relatively simple. There are a range of good free and paid invoicing apps and tools which can save you time and effort, but the key things to include are your business details, client details, the work completed, and your payment terms.
Late payments can be trickier. Especially if you don’t act promptly when a client fails to pay on time, as your original contacts may leave, or a company could have ceased trading since you originally did the work.
Payment dates must usually be within 30 days for public authorities or 60 days for private businesses, but you can set different terms if your client agrees. By default, the payment is deemed late 30 days after either an invoice has been received by the client or customer, or the goods and services have been delivered (if later than the invoice date).
Once that time has passed, you’re entitled to compensations, and to claim interest and debt recovery costs for up to five years in Scotland, and up to six years in England, Wales or Northern Ireland.
The first step for non-payment will usually be a friendly but firm reminder, and an explanation of the additional costs that will build up if the invoice isn’t settled promptly. But if that fails, you can then apply to Small Claims Court to recover the debt, and we have a detailed guide on dealing with late payments, including the process of taking legal action.
Assuming you’re bringing money into your business (and even if you’re not yet earning a profit), the other big financial stress for freelancers is tax. And making sure you’re not risking legal issues by failing to register as self-employed when you start working for yourself, filing information on time, and making the right payments.
We have an advice section dedicated to self-employed tax guidance, including whether you need to file a Self Assessment tax return, discovering what expenses you can claim if you’re working from home, and the changes coming as a result of Making Tax Digital for the self-employed.
The best way to ensure you’re able to avoid legal issues and deal with your tax obligations with the minimum of stress is to do your research and preparation as early in starting your business as possible.
It’s often worthwhile speaking to a specialist accountant or financial advisor when you’re setting up your new business and financial records. Having the right methods in place from the beginning is a lot easier than sorting things out retrospectively, and can save you a substantial amount of time and money.
One of the biggest fears is being subject to a tax dispute or investigation by HMRC. Fortunately, IPSE membership can include cover for both of these situations, including providing experts, and legal fees up to a cost of £100,000.
Due diligence and effort will minimise your legal risks as a freelancer, but issues can still occur. If you’re self-employed and an IPSE member, there’s a range of support available, including tax and legal helplines, insurance discounts, and more.
If you need specialist individual advice from legal or financial professionals, it’s worth connecting with other people who have had similar experiences for recommendations. Along with the IPSE community forums and Facebook group, there are similar resources set up for a wide range of self-employed careers, along with professional organisations for freelancers ranging from CIMPSA for personal trainers, to Bectu for those in media and entertainment.
Even if you don’t receive specific referrals or applicable advice, it can be reassuring just to know that other freelancers and self-employed professionals have been through similar situations. And that they’ve been able to cope and resolve whatever legal issue has cropped up in their careers.
When you’re self-employed, work problems can have an even bigger impact on your personal life, so it can also be useful to get more general advice from organisations such as Citizens Advice. And if legal issues are impacting your mental and physical wellbeing, it’s important to get the advice and support you need.
It’s easy, and understandable, that you’ll worry about any potential legal issues for you and your business. But you’ll often find that you’ve blown them out of proportion, and that they’re relatively quick and simple to resolve with the right advice and support. It’s unlikely that you’ll be the first person to have encountered a specific problem. And many self-employed and freelance success stories include overcoming legal hurdles, especially in the early days.
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