Key tax dates and deadlines for 2018/19
It is an inevitable reality that, for anyone earning a livin...
By Jonathan London on 6th July 2015
Limited Company? Sole trader? Umbrella company? When you go self-employed, one of the first questions you’re likely to ask yourself is, “How should I set up my business?”
It’s a good idea to make this decision before you start work, but you can always change your status later. Like everything else, getting it right first time will save you hassle, admin, time and expense further down the road. Regardless, you’ll need to register your business status with HMRC for tax purposes.
Which option is best for you will depend on the type of work you’ll be doing, the type of clients you’ll be working for and how much money your business is likely to generate.
Let’s take a look at the three most common forms of self-employment and how to get started with them.
A Limited Company is a legal entity in its own right. This means its finances, debts and assets belong to the company, not you or any other shareholders. Vitally, this means your personal assets remain protected if the worst happens and your business fails, and you’re likely to only lose any funds you have personally invested in the business. Companies pay corporation tax at 20 per cent of their profits, which must be settled within 9 months of your year end accounting period. For many self-employed professionals, the Limited Company route also provides the most flexibility when it comes to tax planning. This provides Directors of the company with the most tax efficient income, achieved by taking a low salary and withdrawing additional funds through dividends.
Before you start work, you’ll need to incorporate your business. Start by choosing your company name, then complete and return these documents to Companies House:
Within a few days, you’ll receive your Certificate of Incorporation. Alternatively, you can set up your business by using an accountant who will do a lot of this work for you, along with making sure your business is registered with HMRC for Corporation Tax and PAYE.
Starting work as a sole trader is quick, simple and painless. Once you’ve registered with HMRC for self-assessment you can start work. However, operating this way isn’t without risk. Unlike a Limited Company, there’s no limitation on your liability if things go wrong – i.e. you are personally liable for the business, how it operates, and any debts it incurs.
Once you’ve registered with HMRC for self-assessment, you’re good to go. Simply get your name out there and start winning, and doing, business.
An umbrella company acts as a Limited Company on your behalf. You become an employee of an umbrella company, which then contracts you out. It handles the invoicing and pays you through PAYE. Umbrella companies take the hassle out of running a company, but you lose some of the financial benefits.
All umbrella companies are different. However, most offer a simple signup service via their website or call centres.
Our guide to choosing the right accounting software walks you through the market leaders to help you choose the right platform for your business
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If you need a little help to find the right accountancy service, don’t worry.
Thousands of contractors, freelancers and locums turn to Boox for help and advice with their limited company accounting. They love our personal service and app.
Specialist accounting for sole traders and the self employed, Boox combines easy online tools with expert support to take away the stress of handling your accounts.
Our combination of market-leading accounting software and expert personal advice gives you greater financial control and more time to grow your business.