Over the past decade, the number of people registered as self-employed has risen by 25% to over 4.81 million. Seeing as you’ve clicked on this article, it looks like one more might be joining the ranks! If you’re thinking of becoming self-employed to land a job (or have even been asked to become self employed by your current employer), there are a lot of important factors to consider – but here are just four of them.
Sole Trader or Limited Company?
The major difference between a sole trader and a limited company is that a limited company operates as a completely separate entity from your personal finances, whilst sole traders’ business and personal finances are rolled into one.
If you’d rather not be personally liable for your business debts, and want the freedom to run your own business, forming a limited company could be a sensible option.
There are some tax advantages if you run your own company, though the Government is steadily reducing these. You should keep in mind that being a director of a company brings a number of important responsibilities, and you will need to file annual accounts and various returns with regulatory authorities such as Companies House and Her Majesty’s’ Revenue and Customs (HMRC).
We’ve written an article that explains the various options on how to structure your business to help you make your decision. Alternatively, an accountant from Crunch will be able to advise what’s best for you.
Tax and expenses
Do you know how Corporation Tax, VAT, Income Tax and Business rates work, and who pays them?
We’ve put together a short article highlighting what you’re expected to pay as a freelancer, contractor, or small business owner, and what happens if you don’t.
IR35 – An important bit of tax jargon
IR35 is legislation designed to stop regular employees claiming to be self-employed contractors to gain tax benefits.
HMRC do not make it easy to distinguish between contractors and employees, and there are a variety of questions you need to ask to check your status. You can get an idea of how at risk you are from an investigation by HMRC by taking an IR35test with our calculator.
Waiting until the end of the month or when the client would like you to invoice holds back your cashflow, so we would recommend sending your invoice on the day that you’ve completed the work.
If you complete a project for a client at the start of the month and wait until the last day of the month to invoice them, you could be waiting yet another month for your cheque to come through.
It’s sadly very common that self-employed people are at the bottom of the list when it comes to being paid on time. If you have a client who isn’t paying up on time, grab one of our late payment reminder templates to get things moving. And if that doesn’t work, you can always enlist the help of our professional debt collection service.