Great, you’ve decided to work for yourself. It’s a very rewarding career path for over 5 million people in the UK. We’ve put below some of the things you need to do and may want to consider as you’re starting on this journey.
If you are widely referred to as a freelancer, it’s likely you are a sole trader. It means that you can keep all your business’s profits after tax, but also that you are responsible for the debt or financial responsibilities of your company.
How to set up as a sole trader
You will need to tell HMRC that you are a sole trader so that you can be taxed correctly. You will pay your yearly tax return through HMRC’s Self Assessment.
Find out more here.
When do I need to set up as a sole trader?
According to GOV.UK, you need to set up as a sole trader if any of the following apply:
- You earned more than £1,000 from self-employment between 6 April two years ago and 5 April last year
- You need to prove you’re self-employed, for example to claim tax-free childcare
- You want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
Find out more here.
Further support with setting up as a sole trader
IPSE is running an incubator programme to support those who are new to self-employment. This 12-month programme covers everything from setting up, networking, and mental health as a freelancer. For more information, contact one of the membership team.
There is a ‘Set up as a sole trader’ step-by-step plan on GOV.UK, which you can do here.
A limited company is a company ‘limited by shares’ or ‘limited by guarantee’. ‘Limited by shares’ means the company is legally separate from those who run it, has separate finances, and has shares and shareholders. It can keep any profits it makes after tax.
In comparison, ‘limited by guarantee’ companies are not for profit usually, so they invest their profits back into the company. It is still legally separate to the people who run it and has separate finances.
Limited company owners are particularly impacted by the implementation of IR35. Check out the IR35 advice section for up-to-date information or use our tax and legal helplines to find out more.
How can I set up a limited company?
Chat to your accountant in order to determine if you should be a limited company. There are a number of steps you will have to take in order to set up, but GOV.UK has a handy step-by-step guide to help you.
These steps include:
- Choosing a name
- Choosing directors and a company secretary
- Deciding who the shareholders or guarantors are
- Identifying people with significant control over your company
- Preparing documents agreeing how to run your company
- Keeping records
- Registering your company
If you're looking for self-employed advice topics other than IR35, we can help.
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