Should A Freelancer Set Up A Registered Business?

The Startup Journey of Freelancers — Should a freelancer set up a registered business?

With a shrinking job market compounded by an impending recession, more and more people are turning to short-term contract roles or freelancing to make a living.

Despite this, the freelancer economy is not new. You might have even been freelancing for a while now.

Regardless of which camp you are in, you might be faced with the dilemma of formalising your business — should you take the plunge?

The Challenges of Registering a Business

Freelancers feel that there is much cost & work involved with running a formal business and they have limited resources to kickstart the transition.

The hassle of keeping up with administrative and regulatory requirements like income reporting or filing taxes often discourages freelancers from taking that very first step.

This balancing of actual work with administrative tasks is a significant drawback that’s enough to call off the deal for some. No one wants to spend their entire day on a project and then waste their free hours organising the relevant paperwork.

How Registering a Business can benefit Freelancers

Despite these perceived challenges of registering a business, there are actually a number of benefits that come with starting a company which if freelancers knew, could make their decision to do so a lot simpler. These include:

(1) Knowing your profitability

Having a business account separates your business transactions from your personal finances, which helps you keep tabs on your revenue, profit, as well as expenditure. With a better overview of your finances, you’ll know just how much you’re actually making each month.

This is especially important — even if you’re a registered business — because you want to know if things are going well. With a business account, you will be able to make informed decisions more easily.

(2) Ease of tax reporting

As a freelancer, you may have accepted payments for jobs in different forms (i.e. cash, Paypal, bank transfer etc), which might make it hard for you to figure out exactly what your income was for the month — let alone a whole year come the annual tax filing period — if you don’t keep proper records.

Sieving through the entire transaction histories for these payment methods is a tedious job that is prone to human error. Forgetting to file your taxes or reporting them wrongly will get you on the wrong side of the law.

But all of this can be avoided if you use a business account to conveniently track all your transactions for accurate and timely tax reporting.

(3) Corporate tax benefits

Turning your freelance work into a proper business also gives you corporate tax benefits.

Mr Tony Koh, director of ContactOne Professional Services Pte Ltd, shared: “If you are earning good revenue, your personal income tax can be as high as 22%. For companies, the corporate tax rate is considerably lower at 17%. Furthermore, qualifying companies can enjoy tax exemption for the first $200,000 of profit for the first 3 years.”

(4) Work with large corporates and government bodies and agencies

By operating as a proper business, you appear established in your work. Since some companies only commission work to registered businesses, and others are only able to make payments to business accounts due to their finance processes, this is the way to go if you’re looking to land a big job with corporate customers or government agencies.

(5) Access to business loans, as well as government grants and other support

Only registered businesses can apply for business loans. This is a major consideration if you have the intention to grow your business and need may need financing down the road.

Moreover, during an economic downturn, you will be able to qualify for government programmes such as Enterprise Singapore’s Temporary Bridging Loan or IMDA’s Digital Resilience Bonus that was made available in this COVID situation.

Support for freelancers

All these benefits aside, registering a business isn’t for every freelancer — especially if you’re just freelancing on the side for some extra income. If you have decided that the benefits of operating as a business outweighs the cons, you can strike a balance by choosing an entity type that suits your needs and your vision for the business.

Mr Tony Koh explained: “A sole proprietorship, as compared to a private limited company, is easy to set up and has fewer compliance requirements. With just a little work to get yourself registered as a sole proprietor, you will get to enjoy the benefits of being able to bill customers under a business name and better protection of your legal rights.”

As a first-time business owner, you can visit the OCBC Business Starter Kit, where you will find lots of practical advice and tips from experienced business owners.