Self Employed Or Limited Company???

Mikebuk_3

Hi All,
There looks to be a lot of people on here who have a great deal of knowledge on the subject. Hopefully someone can point me in the right direction with what I'm about to ask.
I am currently in fulltime employment and as with a lot of people pay my tax and NI via the PAYE system. A friend of mine who owns his own company has asked if I could freelance for him in my spare time. I'm happy to do this but obviously not being his employee, I need a way of handling the tax from these earnings.
As I see it, I have two options open to me. I can either go self employed or form my own Ltd Co. I went into my local tax office today to try and find out what I needed to know, but, I'm even more confused now than I was before I went in to see them.
Any advice on which route to take for the best would be very much appresiated.

mrtg0525

Hard to say, in my opinion. If it's just a little work here and there it's probably not worth getting a limited co - a friend of mine who does some freelance journo work does it that way, collects all the receipts and throws everything at his accountant at the end of the tax year.

I'd say that a limited co only makes sense if you'll generate substantial turnover a year and/or if you need the additional protection from a limited co.

Mikebuk_3

Thanks for the reply. An accountant is something that I would rather stay clear of. I'm told that being self employed doesn't require an accountant on the other hand, a limited company does. On the other hand, being self employed means having to pay NI each and every week regardless of if I work that week or not, limited company status limits NI to as and only when you draw earnings from the company if at all. My local tax office has already told me this.

mrtg0525

Well, a limited company does require an accountant to certify the accounts (at least that's my understanding). I'm not quite sure why you want to stay clear of an accountant? If they're any good, they should save you more money than they cost you (no, I'm not an accountant, I however do have a limited company so I'm used to having an accountant).

I'm not quite sure what your tax office has told you and in what kind of context - I would expect that no matter how you receive the additional income, you'll pay additional NI on it (unless you're taking dividends out of a limited company as they're investment income, but if you've got a ltd co, you usually pay yourself a salary anyway). I guess they'll probably ask you to project your additional income and collect the additional NI that way; However the advice sounds to me more like the advice they'd give to someone who is solely self employed, whereas my understanding is that you're doing a little work on the side, which changes matters somewhat.

Also, did you check your employment contract to see if you need your employer's permission to do some work on the side? In some cases you do...

Bean_Counter

Mikebuk wrote: »

A friend of mine who owns his own company has asked if I could freelance for him in my spare time. I'm happy to do this but obviously not being his employee, I need a way of handling the tax from these earnings.

Hi,

Are you quite sure that you will be self-employed, rather than an employee of your friend? HMRC are picky on this, and the decision is their to make and not yours. Getting it wrong can be costly in terms of unpaid tax, although the good news is that it is the 'employer' that foots the bill rather than you.

Have a look at this HMRC booklet, particularly the questions on pages 5 & 6 which should explain matters a little better than I am doing.

WHA

Bean_Counter wrote: »

Hi,

Are you quite sure that you will be self-employed, rather than an employee of your friend? HMRC are picky on this, and the decision is their to make and not yours. Getting it wrong can be costly in terms of unpaid tax, although the good news is that it is the 'employer' that foots the bill rather than you.

Have a look at this HMRC booklet, particularly the questions on pages 5 & 6 which should explain matters a little better than I am doing.

Fully agree that you have to check out your status, but the "employer" only foots the bill if they take you on as self employed. If you operate as a limited company, the "employer" doesn't have a problem at all, but you do as you may be caught by IR35 and therefore have to pay tax and NIC on your full earnings as if you were an employee. If there is any doubt as to your status having looked at the above link, for your own protection you are best being self employed so the risk stays with the "employer". If you are certain that your status would be ok, then probably best being a limited company if the earnings warrant the cost/hassle of operating a limited company.

By the way, you "don't" have to use an accountant if you have a limited company - there are no legal requirements to have your accounts prepared or signed off by an accountant. Most limited companies do use an accountant because the accounts and tax returns are far more complicated than being a sole trader and you also have PAYE returns as well. But, done properly, using a limited company may well save far more tax than your accountant would cost you.

Georgev_3

I am in a similar position to Mike, working for an employer and about to start some different freelance work. On my main employment I am close to 40% tax threshold so all self employed earnings would be taxed at high rate. Also, to qualify for new job I need to spend 2K on a training course. As a self employed person this would not be tax deductable. The tax office told me only top up training after qualification is tax deductable.
If I set up a Ltd co. before paying for the course I thought I may offset this against profits. Can anybody advise?
Also, can anybody give us a guideline at what level of freelance earnings would financially justify going for the Ltd Co. option.

heleen

The limited company option is not financially (very) different from sole trader - the only real difference is whether you fear that someone might sue you based on teh work you've done. If you're a Ltd company then they can't get to you personally.

It does involve quite a bit of extra work though.
And you need to consider the IR35 question if you remain self employed. This is not an issue if you haev multiple clints.

Hope this helps