4

Ask DN: UK Freelancers, do you operate under a Limited Company or are you Self Employed?

over 5 years ago from

In the past I've been told that if I want to take on contract jobs, that I'd have to form a Limited Co – I decided it wasn't worth it at the time.

I'm looking for some clarification: is it actually necessary?

4 comments

  • Tom HareTom Hare, over 5 years ago

    As others have already said, nearly all recruitment agencies and larger design agencies require you to operate as a limited company (or an umbrella company but forget that).

    Despite what you often hear, setting up a limited company is actually pretty cheap and easy. If you file the paperwork with Companies House yourself then the fee is £14 IIRC. Even if you decide to do the setting up yourself, get a recommendation for a local accountant. They can help you with the general administration side of the business like book-keeping and tax planning as well as doing your accounts at the end of the year.

    Numbers wise; as a limited company, your NI contributions are very low (nominal) and corporation tax (up to £300,000) is 20% (going down to 18% by 2020) which compares favourably to 20% income tax plus 12% NI contribution as an employee or sole trader. It's worth noting that in the Budget last week, basic rate tax on dividends was upped from 0% to 7.5% hitting freelancers operating as a limited company in the pocket hard (several £k pa) but it's still advantageous to operate as a limited company in additional to the requirement from many agencies listed above.

    2 points
  • Roy BarberRoy Barber, over 5 years ago

    Always been LTD & VAT(Flat Rate Scheme) registered when i was a freelancer. Had a better effect on my income: Basic Pay + Dividends & 6% Extra earnings from flat rate VAT

    Its not necessary, it does provide better protection against you and your assets. E.g take down a eCommerce store for 24hrs with 365 million turnover a year and they sue you for 1mil! they wont be able to claim your house. But then i suppose thats also what my liability insurance was for!

    Its a no brainer now i have 5x staff as the risk and tax benefits far outweigh the extra work needed to be LTD. But freeagent takes care of pretty much all of that.

    0 points
  • P GBP GB, over 5 years ago

    It's necessary in some cases, but advisable in almost all.

    If you want to work through any recruitment agencies, they normally require you to be a limited company, and often the larger design agencies would do too.

    Regardless of that though, if you're freelancing/contracting full time and you're self employed, you're giving HMRC a lot more money than you need to be. For the most tax efficient was of getting yourself paid, you need to be a limited company. If you're earning over about £30k a year and are self employed, you're likely to be losing out on a fair bit of take home pay.

    I wrote some words about this subject for everyday designer a while back, but it still applies now. http://everydaydesigner.net/freelancing/the-financial-side-of-freelancing

    0 points
  • Gavin JohnsonGavin Johnson, over 5 years ago

    If you're going through recruitment agencies, they tend to only deal with you if you're registered as a limited company — this is mainly because of the UK's IR35 legislation. Working with clients or agencies you shouldn't have too much trouble being 'self-employed'.

    0 points