Is it risky to go freelance? The legal compliance risks UK freelancers need to know
The freedom of freelancing comes with a hidden cost: you're now responsible for everything your employer used to handle – including staying on the right side of UK law.
Going freelance is one of the most exciting career moves you can make. No more commuting, no more office politics, no more asking permission to take a Thursday afternoon off. But amidst the daydreams of working from coffee shops and setting your own hours, there's a question that keeps many would-be freelancers awake at night: is it actually risky to go freelance?
The honest answer? Yes – but not in the way you might think.
Most people worry about the obvious risks: irregular income, finding clients, the isolation of working alone. These are real concerns, but they're manageable with good planning and a decent financial buffer. The risks that actually catch freelancers out are the ones they never saw coming – the legal and compliance pitfalls that can turn a thriving freelance career into a nightmare of HMRC investigations, client disputes, and unenforceable contracts.
The good news is that these risks are entirely avoidable. You just need to know what you're dealing with.
The risks nobody warns you about
When you're employed, your company handles tax, contracts, insurance, and compliance. You probably never thought twice about it. As a freelancer, all of that lands squarely on your shoulders – and ignorance is absolutely not a defence.
IR35: The tax trap that catches thousands
If you've done any research into UK freelancing, you've probably encountered IR35 – the tax legislation designed to identify "disguised employees" working through limited companies or as contractors. Get caught on the wrong side of IR35, and you could face a tax bill that wipes out years of earnings.
Here's how it works: if HMRC determines that your working relationship looks more like employment than genuine self-employment, you'll be taxed as if you were an employee – but without any of the benefits. We're talking about losing up to 25% of your take-home pay through additional National Insurance contributions and lost expense deductions.
The penalties for getting it wrong are severe. If HMRC decides you were "careless" about your employment status, you'll face a 30% penalty on unpaid tax. Knew you were inside IR35 but didn't act? That's 70%. Actively concealed your status? 100% penalty.
And here's what's changed recently: from April 2025, the IR35 thresholds increased to £15 million turnover and £7.5 million on the balance sheet for medium and large businesses. More significantly, from 6 April 2026, new rules make end clients, agencies, and umbrella companies jointly and severally liable for correct payments. This means the whole supply chain is now on the hook – and everyone's going to be far more careful about who they work with.
The most common IR35 mistake? Having a contract that says one thing while your actual working practices say another. You could have a perfectly drafted "outside IR35" contract, but if you're treated like an employee day-to-day – same desk, same hours, same manager – HMRC will use the reality to determine your status.
Contracts that don't protect you
Here's a scenario that plays out constantly: a freelancer lands their first big client, agrees terms over email, delivers excellent work – and then doesn't get paid. Or gets paid three months late. Or finds their work being used in ways they never agreed to.
Without a proper contract, you have almost no recourse. And even with a contract, if it's poorly drafted or missing key clauses, you could find yourself unable to enforce payment terms, unclear about who owns the intellectual property you've created, or liable for damages you never anticipated.
Common contract mistakes include:
No clear payment terms – When is payment due? What happens if they're late? Can you charge interest?
Vague scope of work – Without clear deliverables, clients can keep asking for "just one more revision" indefinitely
Missing IP clauses – Do you retain rights to your work? Can you use it in your portfolio? Who owns what?
No liability cap – A claim against you for substandard work could be financially ruinous without proper limits
Inadequate termination rights – Can you walk away if the client becomes impossible to work with?
The temptation when you're starting out is to keep things informal, especially with friendly clients. But verbal agreements and email chains are a recipe for misunderstandings – and misunderstandings become disputes.
HMRC registration and record-keeping
This one catches out more new freelancers than you'd think: you must register as self-employed with HMRC by 5 October following the tax year you started freelancing. Miss this deadline and you're already starting your freelance career with a compliance failure.
Beyond registration, you need to keep records of all your income and expenses – and keep them for at least five years. HMRC can request these records at any time, and "I didn't realise I needed to keep receipts" won't get you very far.
With HMRC announcing 5,000 additional compliance officers by 2029-30 – forecast to raise an extra £7.5 billion in tax annually – the days of flying under the radar are definitively over.
Insurance gaps
When you were employed, your company's insurance covered you. Now? If a client claims your work caused them financial loss, or you accidentally breach confidentiality, or your laptop containing client data gets stolen – you're personally liable.
Professional indemnity insurance isn't legally required for most freelancers, but operating without it is a significant risk. A single claim for negligence or breach of contract could cost more than your entire year's earnings.
GDPR and data protection
If you're collecting any client data – email addresses, contact details, payment information – you're subject to GDPR requirements. This means having a privacy policy, securing data appropriately, and being able to demonstrate compliance if questioned.
Many freelancers assume GDPR only applies to big companies. It doesn't. And the fines for serious breaches are calculated as a percentage of turnover – which means they scale to hurt small businesses just as much as large ones.
How to protect yourself without becoming a compliance expert
Reading all of this, you might be wondering whether freelancing is worth the hassle. It absolutely is – but only if you take the legal side seriously from day one.
The biggest mistake new freelancers make is trying to figure everything out themselves. You're an expert in your craft – whether that's design, development, writing, consulting, or any other skill. You're not an expert in UK employment law, tax legislation, or contract drafting. And you don't need to be.
Get proper contracts in place
Every client relationship should start with a clear, legally sound contract. Not a template you found online, not terms you copied from another freelancer – a contract that's actually tailored to your situation and enforceable under UK law.
This is where working with specialists pays for itself many times over. A contract review might cost a few hundred pounds, but it could save you thousands in unpaid invoices or disputed work. More importantly, it gives you the confidence to focus on what you're actually good at.
Understand your IR35 status
Before you take on any contract work, especially with medium or large businesses, get clear on your IR35 status. This isn't something to guess at or hope for the best – the consequences of getting it wrong are too severe.
HMRC's own Check Employment Status for Tax (CEST) tool can give you an initial indication, but it's not definitive and has been criticised for producing unclear results. For any significant contract, professional advice is essential.
Work with experts who understand freelancer needs
The best investment you can make as a new freelancer isn't a fancy website or expensive equipment – it's getting proper legal and compliance support from people who actually understand how freelancing works.
This is why we recommend KKB Services to our UK community members. They specialise in supporting freelancers and contractors with exactly the legal compliance challenges we've discussed – from contract reviews and drafting to IR35 status assessments and ongoing compliance support.
Unlike generic legal services that treat freelancers as an afterthought, KKB understands the specific challenges of self-employment. They can review your contracts before you sign them, help you structure your working relationships to stay clearly outside IR35, and ensure you're properly protected as your freelance career grows.
The peace of mind that comes from knowing your legal foundations are solid? That's what lets you actually enjoy the freedom you went freelance for in the first place.
The bottom line: freelancing is risky, but the risks are manageable
Yes, going freelance involves real risks. But they're not the risks most people worry about.
The income uncertainty and client acquisition challenges that keep people in employment? Those are just normal business problems that every successful freelancer learns to handle. The real dangers are the legal and compliance pitfalls that can blindside you months or years into your freelance career – the IR35 investigation that demands five years of back taxes, the client dispute with no contract to fall back on, the data breach that triggers a GDPR investigation.
These risks are serious, but they're also entirely avoidable. The freelancers who thrive aren't necessarily more talented than those who struggle – they're the ones who took the boring-but-essential legal stuff seriously from the start.
So is it risky to go freelance? Only if you go it alone.
Get proper contracts. Understand your tax obligations. Work with specialists who can keep you compliant. Do these things, and the rewards of freelancing – the flexibility, the autonomy, the potential to earn more than you ever could as an employee – are absolutely worth it.
Ready to make sure your freelance career is built on solid legal foundations? Get in touch with KKB Services for expert support with contracts, compliance, and everything else that keeps freelancers protected.