Self-employed vs Limited Company ?

[cakeaddict]

Hi,
I'm planning to launch a freelance career in the next month or so and am trying to get my head around all the legal / tax implications.

Can anyone point me in the direction of some advice on pros / cons of being self-employed vs a Ltd Company? I understand the basics of each, but can't quite work out what would make most sense for me - or whether I'd be better off financially with one or the other.

I like the simplicity of being self-employed, at least to start with, though am slightly scared by being liable for all company debts (though I expect to have very few outgoings). Has anyone started out as self-employed then moved it to a company? Is this simple to do or is it better to pick one and stick with it...?

Thanks!

First the financial angle - it costs upwards of £600+VAT a year to run a company (twice this for a posh high street firm, four times for a big name). If you are earning profit of £15,000 a year you should save that in tax/NI so from here upwards it becomes worthwhile: at £45k the savings could be over £2k a year net.

I prefer not to have my family home on the line in case some nutter decides to take me to court (or an insurance company is looking to recover some of their payout to someone else), so if you don't go down the limited liability route, make sure you get rid of your assets. This is particularly the case if you employ people as a disgruntled/mad/greedy employee can cost you a fortune. It will cost you more in legal fees to do this robustly than to set up and run the company for a year of course.

Other than debts which crop up unexpectedly because someone sues you, you don't have to worry about liability for business debts because noone will offer you credit anyway.

Aside from that it depends what sort of freelancing. If you are selling your own services most companies you work for want you to be a company: this gets them out of being stung for tax and NI as your employer, but it exposes YOU to something called IR35, for which you need a specialist (and it will cost you a bit more).

On balance, unless this is something that you might only make £20k from and then give up I would always advise a Ltd Co.

phew, saved me typing roughly the same thing

Thanks, that's useful... I'm doing this part-time and although obviously the aim is to make a reasonable annual salary, I guess at the moment I'm still worried about upfront costs if things don't work out as planned.

Any thoughts on starting as self-employed and then switching once I know for sure enough work will come in?

Depends on the type of business and the extent of uncertainty. If you are going to be signing up contracts with customers (and to a lesser extent suppliers) it will be a pain changing them over when you incorporate. If you are buying and selling or providing an ad hoc service, it won't be a problem.

Don't forget the advantages of being able to take tax free dividends out of a limited company a good accountant should be able to sort you out with this

already taxed, not tax free - divs come out after the ct bill

not always...some people choose to draw a divi monthly or quarterly

but a dividend comes out of the after CT retained profits of the company ??
that is why it includes a deemed tax credit
and 40% & 50% taxpayers have to pay more tax on them