As a freelancer starting out in business on your own, you may have felt unsure about the potential success of your new business venture…

You may well have started out as self-employed – it is easy to register with HM Revenue & Customs and then you are ready to start trading.

Now a few months or years later you have a successful business but could you be better off if you incorporated your business?

But Incorporation is such a big step!

Transferring your business to a company can seem like a big step but here at Clearways Accountants we have helped clients with this change on many occasions.

The biggest change is how you pay yourself.  When you are self-employed any money in the business is yours to spend or save as you wish.  Once you are a shareholder (owner) and employee (director) of your own company you cannot just “dip” in to the company bank account.

If you have a steady, regular income you can take a low salary each month and a further amount each week/month/quarter in dividends.  Dividends are paid to the owners of the business.

How will I know how much dividend to take?

The accounting spreadsheet provided by Clearways Accountants will automatically calculate the amount you can take as a dividend.  You can then transfer this amount from the Company to your personal account.

Why could I be better off?

Profits in a company are taxed at 20% up to profits of £300,000 and at 23% on profits above that level, although this rate is falling to 21% from 1 April 2014.

If you are self-employed you will pay income tax at 40% once your profits are greater than £41,450 (in 2013-14) or £41,865 (in 2014-15).  If you are a director/shareholder of your own company you will pay tax at 32.5% on dividends received in excess of these amounts.  A saving of 7.5%

The biggest saving can be made in national insurance.  As a self-employed freelancer you would pay class 4 national insurance on all profits between £7,755 and £41,450 (2013-14) at 9% so a maximum of £3,302 on the band and a further 2% on profits above £41,450.  The equivalent figure for 2014-15 is £3,052 on the 9% band.

When you are an employee receiving a low salary and dividends you will pay no national insurance; a total saving on profits of £41,450 of £3,302 in 2013-14 and £3,052 for 2014-15.  Can you afford to throw this much money away each year?

Are you considering this change?

If you would like help in transferring your freelance, self-employed business to a new Limited company then contact Clearways Accountants on 01737 244298.