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20+ essential terms every UK freelancer should know. From Net 30 to IR35, we explain it all in plain English.
Money owed to you by clients for completed work. Appears as an asset on your balance sheet.
Example: You have £15,000 in accounts receivable if you're waiting on 3 invoices for £5,000 each.
Money owed to you that you're unlikely to collect. Can often be written off as a business expense.
Example: A client went bankrupt owing you £3,000 — this is likely a bad debt.
A formal document modifying the original project scope, timeline, or cost.
Example: Client wants additional pages on their website; you send a change order for £500 extra.
A document reducing or cancelling the amount owed on a previous invoice.
Example: Client paid for 10 hours but only used 8; you issue a credit note for the unused 2 hours.
Payment is expected immediately upon receiving the invoice.
Example: Common for final payments or small-value invoices.
Tax legislation designed to identify contractors who work like employees. Affects how you pay tax and National Insurance.
Example: If you work for one client, at their office, following their schedule, you may be "inside IR35."
A fixed fee you can claim on overdue invoices under UK law: £40 for debts under £1,000, £70 for £1,000-£9,999, £100 for £10,000+.
Example: If a £2,000 invoice is unpaid, you can claim £70 in fixed compensation on top of interest.
A separate legal entity from its owner(s). Offers liability protection but has more administrative requirements.
Example: A freelancer earning £60,000+ might incorporate to reduce tax through dividends.
Payment terms requiring the client to pay within 30 days of the invoice date.
Example: An invoice dated January 1st with Net 30 terms is due by January 31st.
Payment terms requiring payment within 14 days of the invoice date.
Example: Commonly used for ongoing retainer work or smaller invoices.
Payment terms requiring payment within 7 days of the invoice date.
Example: Often used for rush work or with new, unestablished clients.
A preliminary invoice sent before work begins or goods are delivered, often used to request upfront payment.
Example: A 50% deposit request before starting a project.
Advance payments towards next year's tax bill, required if your tax bill exceeds £1,000. Two payments of 50% each.
Example: If you owe £3,000 this year, you'll also pay £3,000 in advance (split into two £1,500 payments).
A document from a buyer authorising a purchase. Large companies often require a PO number on invoices.
Example: "Please reference PO-12345 on your invoice for our accounts team."
An ongoing agreement where a client pays a fixed amount monthly for a set scope of work or access to your services.
Example: A £1,500/month retainer for 10 hours of marketing support.
Interest you can legally charge on late commercial payments under the Late Payment of Commercial Debts Act 1998. Currently 8% + Bank of England base rate.
Example: On a £5,000 invoice 60 days overdue, you could claim approximately £105 in statutory interest.
When a project gradually expands beyond the original agreement, often without additional compensation.
Example: "Can you just add one more feature?" repeated 10 times.
A self-employed person who is the sole owner of their business. You and the business are legally the same entity.
Example: Most freelancers start as sole traders before considering limited company status.
HMRC's system for collecting Income Tax from self-employed individuals. Deadline is 31 January for online submissions.
Example: You must file a Self Assessment tax return if you earned over £1,000 from freelancing.
A consumption tax of 20% (standard rate) that VAT-registered businesses must charge on goods and services. Required if turnover exceeds £90,000.
Example: A £1,000 invoice becomes £1,200 with 20% VAT.