If you are new to contracting or freelancing your first thought is likely to be…
What’s the best trading method for me?
It is important to get proper balanced advice to help you make the decision as some accountants might steer you towards a Limited Company when actually a Sole Trader Solution would benefit your situation, or vice versa.
The first thing to consider is your anticipated turnover – there may be tax efficiencies in operating through a Limited Company which could maximise your take home pay.
Many people are attracted to the status of being a Company Director and trading this way also provides security, as the owners and shareholders of a Limited Company are not usually personally liable for any debts run up by the business.
But trading through a Limited Company brings added admin burden and directors responsibilities, such as filing annual accounts and information on company shareholders. You are also liable to pay Corporation Tax on profits.
Tax Efficiencies Vs Hassle
If you don’t think the tax efficiencies are available as you don’t expect your turnover to be that high, or if you are just a little frightened about the responsibilities involved in running a Limited Company then often when starting a business, the simplest way is as a Sole Trader. After registering with HMRC, you are simply required to complete a Personal Tax Return each year and pay tax on the profits you make.
Get the right advice
Whatever you do, don’t make the decision without seeking advice first, and although he might have great trivia knowledge ‘Bob from down the pub’ might not be your best option here.
Seek out a specialist accountant with experience in your field (ask around for a personal referral from others already contracting, or ask Bob to recommend one!), set up a time for a chat either face to face or by telephone, and discuss your options. Most decent accountants will provide this initial meeting for free. If you want to learn more about our accounting services, please get in touch today!
The article outlines the typical tax payment dates and methods of estimating the values of tax payable for each type of tax, including VAT, PAYE, NIC, CIS, Corporation Tax, and Dividend and Personal Taxes.
Rishi Sunak has proposed a number of changes to the way that Corporation Tax will be calculated and applied. Learn more.