It can seem daunting when you decide to set-up business on your own and you change from being a permanent employee to a freelancer…
All the tasks that were completed by the HR department are now left to you, so here are some simple ideas to get you started.
You may be new to freelancing but here at Clearways Accountants we are old hands and we can guide you through your options.
What’s the difference between contracting and freelancing?
There is no standard definition but we like to think of a contractor as someone who works full-time for one client for a number of weeks or months (or even years).
We define a freelancer as someone who has a portfolio of clients, rather like an accountant, and so the freelancer will work for a half-day or a day on a project or task for a client.
Does this difference matter?
Well yes, if you are a freelancer then you have the option of starting out in business as a self-employed. If you are a contractor this option will not be open to you.
If you would like more information on setting up in business as a contractor then see our blog on, “Are you new to contracting?”.
So I’m a freelancer, should I set up as a self-employed?
Setting up as a self-employed is a simple way to start off in business.
All you have to do is:
- Let HM Revenue & Customs know that you have started a business; and
- Decide whether to trade in your own name i.e. Joe Bloggs or under a trade name, for example, JB Marketing Consultants.
All the business income is your own personal income and you will be able to deduct your business expenses and probably a share of your household and car expenses.
HM Revenue & Customs will ask you to complete a self-assessment tax return that must be completed by 31 January (online) and they will use this information to collect any income tax and self-employed national insurance (called class 4 national insurance) due. HMRC will also use the information to collect some payments on account in the following tax year.
You will need to set aside money to pay your income tax and national insurance. The amounts recommended by HMRC for 2012-13 are included in this blog post.
If you are not good with paperwork you may want to sign up for our self-employed package, this will cover everything you need for complete peace of mind and sleepful nights!
When should I think about setting up my own Limited Company?
You can set up your own Limited Company straight away and never freelance as self-employed or you can freelance for a while and then sell your business and client list to your new company when you decide to operate as a Limited Company. Once you set-up your own company you will be able to start benefiting from the tax flexibility and planning opportunities that arise from being a shareholder and a director of your own company. You can check out the tax advantages by using our tax calculator.
It is easy to set up your own Limited Company but quite difficult to close a company so it is worth thinking about it before taking the plunge. Once you have decided to use a company you will need to be disciplined about keeping the company income and cash separate from your personal cash. Using a firm of chartered accountants to complete the paperwork for you can help keep you on the right side of company and tax law and our fixed price Limited Company package will cover your requirements.
If you still cannot decide what is best for you, why not contact us for your free one hour consultation.