If you are freelancing and you are going to work for a number of clients, like the business that helps me with my marketing (see the link to a recent guest blog by Orchard Marketing Associates) then you have the choice between trading as self-employed (sole trader) or through your own Limited company. Starting as self-employed is a very straight-forward option. You can just start in business, you will need to tell HMRC but there is an online form you can complete. All your profits will be subject to tax and national insurance and you can stop trading as easily as you start. Also you can start as self-employed and transfer your business to a Limited company at a later date, either because:
- you want to bring someone else into the business;
- or because you want the protection that limited companies provide; or
- there are financial (including tax reasons) for making the change.
What differences will there be working through my own Limited company?
The main differences are:
- the company will need it’s own bank account;
- you will need to ensure you leave enough money in the company account to cover your company tax liability;
- you and the company are not the same legal person and therefore you should not just “dip” into the company bank account as and when you need money.
If you work with Clearways Accountants we will set you up with a low salary and dividends to ensure that you take your money out tax efficiently.
If you are going to contract then you will not be able to work as self-employed (the film and TV business does have some exceptions to this, the “Lorimer” letters). Your choice will be to work through your own Limited company or through an umbrella company.
From April 2016, individuals working through an umbrella company that are supervised, directed or controlled by the client will no longer be able to claim travel and subsistence expenses. Therefore the combination of paying employer’s and employee’s National Insurance plus Income Tax, expenses and umbrella fees will make this a very expensive option.
The better option will be to set up your own Limited company. At Clearways Accountants we have help many clients set up their Limited company’s and start to trade.
If you would like to see the tax implications of trading as a Limited company compared to self-employed with the new dividend tax, then use our tax calculators.
If you would like help in deciding whether a limited company is for you then please call us on 01737 244298.