Doing consultancy work and the tax situation?

faringdon

Hi, I have been contacted by a B2B consultancy who wish to join me up with clients who want to ask me about my work with  electronics technology.
They say they will just need my "bank details" to pay me.
But please confirm that this is not the case?...i will in fact need to formally set myself up with the inland revenue (tax services) as either a "sole trader" or as a "limited company"?

If i just accept money into my bank account then the tax office will fine me heavily?

Which is best, "sole trader" or "limited company"?

Are there any good guides or youtube videos on how to go about this? (ie setting  up a limited company or as a sole trader?)

It sounds like one needs to pay for an accountant and the fees can be in the thousands per year?
Also, it costs money to dissolve the limited company?
Also, every year that one has a "limited company", even if you didnt make any money in it, and didnt even do any work under it...you still have to pay an accountant to "process your accounts" for you?

Also, supposing you are working as a "Limited company", but then stop getting work and so you need to get a permanent job working under PAYE instead , then it is actually quite expensive to just suddenly get rid of the "Limited company"?

eskbanker

There are numerous pros and cons of sole trader versus limited company, so probably worth searching using those terms, and reading through resulting articles, such as:

https://www.business.hsbc.uk/en-gb/insights/starting-a-business/sole-trader-vs-limited-company

HMRC won't fine you heavily as long as you pay the right amount of tax, but you should ensure that you open a business bank account for such income, as use of a personal one will be in breach of the product Ts & Cs....

faringdon

Thanks, presumably a business bank account costs money and his yearly fees?

eskbanker

faringdon said:

Thanks, presumably a business bank account costs money and his yearly fees?

That's something else to research, https://www.moneysavingexpert.com/banking/business-bank-account/ being a reasonable starting point, other than its insistence that sole traders don't need a separate account (which may be true in company law terms but won't be compliant with bank Ts & Cs so is an irrelevant point).

DullGreyGuy

faringdon said:

Hi, I have been contacted by a B2B consultancy who wish to join me up with clients who want to ask me about my work with  electronics technology.
They say they will just need my "bank details" to pay me.
But please confirm that this is not the case?...i will in fact need to formally set myself up with the inland revenue (tax services) as either a "sole trader" or as a "limited company"?

If i just accept money into my bank account then the tax office will fine me heavily?

Which is best, "sole trader" or "limited company"?

How long are you going to be doing this? 

Is this a short piece of work or a long time exercise? 

From their point of view they will just need to know the legal entity contracting, which will be either you if you are a sole trader or your LTD and the bank details which again will be yours if sole trader or your company's if you incorporate. 

If you pay your taxes or not isnt really their problem, unless you tell them that you won't be paying tax. 

Sole trader is quick and easy, its cash based so dont have issues of having to pay taxes on work thats been billed but not yet paid etc. You can fairly easily do it all yourself. 

Limited company comes with more overheads and you're more likely to want an accountant and it has to use accrual accounting. It can be more tax efficient depending on your broader circumstances, also seperates liability to some degree, but probably not worth it for a more modest income or a short term project.

If you do incorporate then it potentially introduces IR35 considerations which you'd need to discuss with the client.

Best get yourself a meeting with an accountant, ideally one thats used to dealing with contractors. Most will do short initial meetings for free.

saajan_12

faringdon said:

Hi, I have been contacted by a B2B consultancy who wish to join me up with clients who want to ask me about my work with  electronics technology. - how much money are we talking per year? And would you have any significant expenses? The rules change if you're above £1000 and the pros/cons might change as you get higher. 

They say they will just need my "bank details" to pay me. - correct, this can be your personal bank account or a new bank account
But please confirm that this is not the case?...i will in fact need to formally set myself up with the inland revenue (tax services) as either a "sole trader" or as a "limited company"? - if limited company, then there'e more setup to create the company, file accounts, etc. If sole trader, then you just register for Sole Trader and Self assessment, its a simple form you can do yourself. 

If i just accept money into my bank account then the tax office will fine me heavily? - no provided you've registered as a sole trader, and then pay your tax annually / as requested. No fines. 

Which is best, "sole trader" or "limited company"?  - depends on your situation. Sole trader is simpler and has less setup costs, but you pay full income tax in the year you earn the money. Limited company can limit your liability if someone were to sue and you *might* be able to structure the income to reduce tax, but it won't work for everyone and the setup costs are higher so might not be worth it. 

Are there any good guides or youtube videos on how to go about this? (ie setting  up a limited company or as a sole trader?)

It sounds like one needs to pay for an accountant and the fees can be in the thousands per year? - for a limited company, an accountant might be more relevant and costs would depend on how complicated it is.. low end maybe just sub 1000. Not needed for sole traders. 
Also, it costs money to dissolve the limited company? - once the company is no longer trading for 3 months and all the debts / assets have been sorted, then its fairly easy <£100 fee. If you try to close when there are still debts then its more complicated and expensive. 

Also, every year that one has a "limited company", even if you didnt make any money in it, and didnt even do any work under it...you still have to pay an accountant to "process your accounts" for you? - don't strictly have to pay and accountant, you can do it yourself. 

Also, supposing you are working as a "Limited company", but then stop getting work and so you need to get a permanent job working under PAYE instead , then it is actually quite expensive to just suddenly get rid of the "Limited company"?  - as above re disolving the company

The easiest thing would be to register as a sole trader via an easy online form with the .gov website. You don't have to but its a good idea to set up a separate bank account so you can easily track income and related expenses, though you should also keep receipts for expenses. 

Tax would be handled via self assessment, basically you file a tax return stating the income less expenses in a form each year, and then HMRC give you an account to pay it. Unlike PAYE, the tax isn't deducted for you so you need to set aside enough money each year, but its an easy calculation. Then you could draw some / all of whats left to your personal account. 

Setting up a limited company instead is more expensive and you have to be stricter about transferring money around, filing accounts, etc. However if the numbers are higher and depending on your expected future income, it might be worth it for the tax benefits and limited liability.