Setting up as a freelancer (Sole Trader)

m1stergeorge

Well-known Member
I’ve been having thoughts recently and am giving consideration to starting up as a Freelance technician in the AV/VC Industry.

I refuse to go through an agency as they will take a cut that doesn’t make it worth my while going Freelance. That said, it probably means that I will need to set myself up as a Sole Trader with HMRC.

I admit, I haven’t got the foggiest when it comes to setting up a company and going self employed but am soaking up as much as I can of the HMRC website. My question is though, I know what sort of National Insurance I would have to pay, but I struggle to understand how it comes with paying myself and the whole income tax situation. Does my ‘salary’ count towards what I need to pay HMRC for tax etc? Do I pay the tax to HMRC on the company as well as my salary? Am quite confused with that bit.

I admit, there are varied reasons for doing this but the most probably being for the money side of things. As well as being bored of having seen the same 4 walls for nearly 7 years, I need a change. Being Freelance means I could be sent to any one of a number of sites and means I’m not tied to working for one company.
 

imightbewrong

Distinguished Member
Depends how you are set up - you should talk to an accountant.

You can be a sole-trader where you get paid directly and pay tax on it (minus some expenses). Or you can set up a Ltd company where your clients are invoiced by and pay the Ltd Co., then you use various means to pay yourself, declare dividends etc. (I do the later). The Ltd Co. has a higher admin overhead, but is generally more flexible and tax efficient.

It depends what your working model will be too, and probably income levels.
 

961

Well-known Member
Take your time to decide if you should set up as a sole trader or form a company which will, in effect, employ you. The implications of this decision are important both to you and to your family. The costs of starting as a company will be larger and the paperwork greater. As a sole trader you will find much less paperwork but if it doesn't work out your assets may be at risk. For example do you own a property? If you have a house it could be at risk

Top tips for setting up your own business | MoneySupermarket.com

Do you know anyone who works as a freelance who has an accountant they can recommend? It could be well worth your while to jot down exactly what you are proposing to do, who will employ you, what the total turnover is likely to be and then ask him to have a general discussion over half an hour or so to advise you. It's possible this meeting will cost you zilch, but even at £100 it will be well worth doing
 

johntheexpat

Distinguished Member
I refuse to go through an agency as they will take a cut that doesn’t make it worth my while going Freelance. That said, it probably means that I will need to set myself up as a Sole Trader with HMRC.
I wouldn't write agencies off quite so quickly. They may take a cut, but if they get you work that is way more important, especially in the beginning. They will also have way better contacts than you and access to work that you just won't get otherwise. That is why they exist. If it wasn't the case, then they wouldn't exist.
 

blue max

Distinguished Member
I admit, there are varied reasons for doing this but the most probably being for the money side of things.
Careful with the perception that people who are self-employed are wealthy and pick their hours.

If you don't earn anything, you earn nothing. And you might get three jobs at the same time and have to let people down, even though you haven't done anything for a week. And often it is when there are unsociable hours or difficult clients that for whatever reason, it is better to use someone other than staff.

Good luck though. If you can make it work it is a great life. Even the best work can get tedious over the years.
 

m1stergeorge

Well-known Member
Thanks for the replies so far folks.

In answer to the questions:

imightbewrong - My admin skills are pretty good, sometimes to the point of being anal. When things depend on stuff like this, I'm generally on the ball. When I'm home I generally have a decent amount of freetime so that side of things should be relatively easy to handle.

961 – I agree entirely, this sort of thing will not happen overnight and will take time to decide upon as well as having discussions with my wife. We do not have kids and don't intend to have any so there are no dependants as such. I know a few freelance friends and colleagues and will be engaging them for advice over the next few days and weeks.

johntheexpat – I agree, perhaps I was a touch quick to write them off as I know of one particular honest and upfront agency that my existing company uses. I'm thankful that I have a half decent amount of contacts at the moment especially thanks to former colleagues that have moved on to pastures new and will again, be asking their advice imminently.

blue max – I agree, I'm very much up for the hard graft element of it. A high percentage of former colleagues have gone Freelance and they all confirm that they are earning more than what the ‘standard' salary was.

Overall, my plan is to go freelance for between 7 and 10 years. Mostly to help me save up for a mortgage as this is the primary aim. The secondary (a close second at that) is to give me more variety in what and where I work. I'm lucky enough to be on a quick commuter line to London so there are ample opportunities. Initially my day rate would be low (£150 per day) to get me known etc. Depending on tax/NI etc that may change over the course of time but I'd like to hope not. (Very) rough indications are that I could be earning upto £600 more per month depending on what happens with Tax and the like.

That was partly the reason for the thread really, I'm trying to find out if I pay tax on the revenue or the profit and if my salary comes off before the profit calculations. Like I say, I'm quite undereducated about this and will be doing a lot of research over the coming weeks.
 

961

Well-known Member
I'm trying to find out if I pay tax on the revenue or the profit and if my salary comes off before the profit calculations. Like I say, I'm quite undereducated about this and will be doing a lot of research over the coming weeks.
First thing to say is that if you are a sole trader you pay tax on the profit. Basically income less allowable expenses. You'll also pay self employed national insurance. You don't get a salary (although your wife may in certain circumstances). You'll need to provide for a pension and, if your revenue is greater than a certain figure you'll need to register as a vat trader and charge vat to your customers but be able to deduct the vat you pay to your suppliers. If you don't register for vat you'll not be able to claim vat back on your supplies

If you register as a company, the company may pay you a salary or a dividend or both.

An accountant will arrange when your business starts and when it adds up its first accounts. This is important as it decides when you first have to pay the tax man. Often this can be quite a long way down the line especially if there are setting up costs. It's easy to forget to set aside money to pay the tax man and say "I'll save some tomorrow" When the day to pay arrives, that's when some businesses fail

All this is a major headache for many. Work certainly does not end at 5pm Friday for the self employed. An agency may just deal with some of this and remove a great deal of worry
 

Bugbait

Well-known Member
Lots of things to cover so I’ll try to stick to the key ones:

Sole Trader:
Pro: Less admin overhead, cheaper to set up.
Con: Unlimited personal liability, i.e. Liquidators can take your personal assets since you are the same entity. Not as tax effective as limited compnay depending on revenue and structure.

Limited Company:
Pro: Limited liability. Short of criminal offences your liability is restricted to the assets held by the company. More tax concessions if implemented correctly.
Con: Higher admin overhead and associated costs.

To be honest I have limited experience as Sole Trader in the UK but I was one back in Australia. In the UK I have always used umbrellas (initially as I was getting established and familiarising myself with UK laws) or my own limited company. For a limited company you pay corporate tax on net profits of around 21% up to a turnover of £300k then it’s 30% (give or take). Note that the corporate tax rate is based on turnover and not net profit.

Net profit is the company revenue minus all allowable operational costs which includes salaries, pensions, NI, equipment, travel, etc. Dividends are paid out of net profits and will incur further personal tax but there is a tax credit or rebate of 10% on this.

One of the big savers is pensions. As a director you can have a pension of up to £50k per annum without incurring benefit in kind tax. If you’re good with your money this can save you a lot of corporate tax while moving your revenue into a nice retirement fund. You move £50k per annum into a pension, don't have to pay corporate tax on it and it's sitting there for when you reach 55.

You can also employ your wife and/or give her shares in your company. This can be tax effective if the salary from her main job is lower than yours. However, you must be able to demonstrate that she does actually do productive work for the company if requested (i.e. Audited). She does not have to perform any work for the company and can still receive dividends if she is a registered shareholder of the company.

Some people like to pay themselves a small salary thus reducing their NI commitments and pay the rest out as dividends. This is also tax effective and something not available as a sole trader.

It’s worth having an accountant if you go down the limited company route unless you want to do a lot of research. You are required to file several documents (PAYE declaration, etc.) each year along with a company and personal tax return.
 
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961

Well-known Member
Lots of things to cover so I'll try to stick to the key ones:
..........

It's worth having an accountant if you go down the limited company route unless you want to do a lot of research. You are required to file several documents (PAYE declaration, etc.) each year along with a company and personal tax return.
That, if I may say so, is a great summary. Nutshell, IMHO

What I would like to add if I may is that as a guy that operated as a sole trader in the UK "It's worth having an accountant if you go down the sole trader route unless you want to do a lot of research."

Every year the tax regs change and while some of the big corporations can employ guys to keep on top of this, you need to get an accountant to do it for you, otherwise you'll waste valuable time that should be spent growing your business trying to fend off the Revenue, who have nothing to lose by asking for more and more details

If you are in business you need an accountant. End of. Sole Trader, Company, Partnership. You simply cannot absorb tax regulations and tax law and effectively run a successful business at the same time

An agency may have systems and accountants in place to do this sort of stuff for its clients. Those that do may have fees you find steep. The alternatives may suit your business but you do need accountancy facilities one way or the other, and they will have a cost

If you don't like the sound of all this, stay as an employee. I never regretted leaving the rat race and "working for myself". It gave me a freedom I enjoyed. But it's not for everybody, and you must be able to decide when to employ specialist advice
 
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m1stergeorge

Well-known Member
Thanks guys, it's certainly sounding like I need to speak with an accountant or at the least a financial advisor.

In the grand scheme of things, I just need to set myself up to the point of being able to submit invoices and receive payments from whatever company I'm working for. The only expenses to the company I set up would probably be my time and travel. Outside of that, there is nothing else that I would need to be compensated for.

I hear stories of people claiming back VAT for loads of things ie their phone bill etc. I guess that could be written down to company use as I would need that to 'work'.

Some interesting things for me to investigate.
 

noiseboy72

Distinguished Member
I employ plenty of AV techs on live events. Feel free to send me your details and experience by PM. We are always looking for good PowerPoint techs, as well as general AV, set construction, sound and lighting specialists as well.

We pay between £180-£220 per day, plus expenses and travel. £150 would suggest to me that you had little experience and I would think twice about employing you, so think about making your rate £175 as a starting point. Avoid working for tin-pot 1 man bands, it will do your rep no good at all.

Things we require you to have:
Liability insurance - minimum of £3M.
Evidence of sole trader or limited company. This is normally in the form of a letter from your accountant. If you do not have this, we will ask you to join an agency and book you through them.
Your own PPE - minimum is safety boots, hard hat and hi-vis jacket.
Driving licence - no more than 6 points and ideally a digital tacho card and C1+E entitlement.

Industry training and extra licences like site forks and IPAF will gain you more work and soon pay for itself.

Most of my freelancers turnover around £35K per year, compared to £25K for my full timers, so work hard and the gains are worth the outgoings and stress of finding the next job!
 

Desmo

Distinguished Member
The Ltd Co. has a higher admin overhead, but is generally more flexible and tax efficient.
More flexible? In what way?

You can't get much more flexible than a sole trader or partnership. Being Ltd means everything has to be accounted for as it's not your money. Being a sole trader gives far more flexibility doesn't it?
 

imightbewrong

Distinguished Member
With a sole trader you don't get a choice about what to do with the money - it gets paid straight to you and taxed. With a Ltd you still have that option, or you can pay part-salary part-dividend (which go to all shareholders) and you can retain money in the firm to extract more tax efficiently in the future or use for other revenue generating opportunities, or as someone above said, build a big pension.

There are a lot of variables, including expected income and user requirements - an accountant will be able to give the most appropriate option.
 

Desmo

Distinguished Member
But being a sole trader gives flexibility in that you can generally run more expenses through the business and not have to be quite so accurate with all of your paperwork as it's your money and you can do what you want with it whereas a Ltd company has to have every penny accounted for because its the businesses money and not yours.

I think so many people unnecessarily jump in to being a Ltd company when they first start up when it doesn't really offer them any benefits. The only time I would say it's definitely worth it is if you're jumping straight in to 40% tax bracket or if you could incur many costs before receiving payment just for the added protection.
 

Bugbait

Well-known Member
But being a sole trader gives flexibility in that you can generally run more expenses through the business and not have to be quite so accurate with all of your paperwork as it's your money and you can do what you want with it whereas a Ltd company has to have every penny accounted for because its the businesses money and not yours.
Not sure I agree with that. Business expenses are business expenses and I'm not sure that claimable list differs much if at all between limited companies and sole traders. Accuracy is important for either method as soon as you're audited.

I think so many people unnecessarily jump in to being a Ltd company when they first start up when it doesn't really offer them any benefits. The only time I would say it's definitely worth it is if you're jumping straight in to 40% tax bracket or if you could incur many costs before receiving payment just for the added protection.
Fair point here though. The vast majority of the contractors/freelancers I know make over £100k a year in revenue (gross income). At this level I would be surprised if a sole trader structure would have many advantages over a limited company. You're right though, at lower revenue levels any advantages a limited company structure may have over sole trader would be diminished. As a very rough guide I would say if you make enough to charge VAT (it's not optional over a certain level, was £70k in the past) then you would benefit from going limited. This seems to be in line with what you're suggesting as well.
 

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