Choices Guide Final

7/31/2019 Choices Guide Final

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Choices

A simple, no-nonsense guide to sel-employment

Not just your everyday accountant |


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I you are thinking about working or yoursel, there are

some key choices you need to make about how you run

your business. Some will be easier to make than others.

But once you understand more about the options and what

they mean or your business, it will be much easier or you

to ensure the decisions you make are the right ones or

you. That is what this guide is all about giving you the

inormation you need to make the right choices or your

particular circumstances and your preerred way o working.

| Pg 1

Heres the content

Why work or yoursel? pg 2

Some common questions to consider pg 3

Dealing with the basics pg 4

Dierent ways o working pg 6

Operating as a limited company pg 7

Working as a sole trader pg 11

Complying with IR35 pg 14

Joining an umbrella company pg 16

Working through an agency payroll pg 17

Choosing the best option or you pg 18

Comparing the nancial benets pg 19

More inormation about Brookson pg 20

Its good to talk pg 21

Making the right choices


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Why work or yoursel?

Pg 2 |

From making a positive career change to putting a redundancy pay-out to good use, there isa huge range o reasons or choosing sel-employment. In act, it is an increasingly popular

career option, with around 1 in 7 workers in the UK currently working or themselves.

More reedom and fexibility

One o the main attractions is the reedom and exibility it oers. You decide the hours

you want to work, where you work, where you go, who you do business with everything

about your business is down to you. You have total control o your working lie.

Greater potential rewards

Because it is your business, you are the one that benefts when things go well not your

boss or anonymous shareholders. The more successul the business, the greater the

potential rewards or you.

Tax riendly

There are some great tax advantages, too. Not the kind you fnd on oshore Caribbean

islands, just more efcient ways to manage your tax aairs in line with HMRC regulations.

More responsibility

Along with more reedom and more potential rewards, comes more responsibility. It is your

company, so the buck stops with you. As well as actually doing your day-to-day job, you need

to manage your fnances, make sure you comply with the relevant legislation and guidelines,

and keep on top o your tax liabilities. It can be a chore. It is time-consuming, but it is

essential.

So, are you ready or sel-employment?

This guide will help you decide. Remember, i you have any questions that arent covered

in this guide, or just want to talk things through with an expert, we have a team o sel-

employment specialists here six days a week, ready to answer any queries you have.


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There are over 1.4 million contractors, reelancers and sel-employed proessionals in theUK. At some point, they were all acing the same choices you are acing, and all had to

make the same decisions you are making, so you are not alone.

We speak to all sorts o sel-employed proessionals rom a wide range o industries and

are aware o their concerns when starting out and the key issues or them.

One thing they all have in common is that they have deliberately chosen a way o working

that best suits their specifc circumstances and their particular preerences. Many like

the added credibility and tax advantages o running a limited company. Some opt or

the simplicity o being a sole trader. Others preer the reassurance o joining an umbrellacompany or working through an agency.

In act, choosing how you operate is one o the most important decisions you will make

when becoming sel-employed. As well as being a big decision in its own right, it will also

have an impact on many other areas o your business, such as tax and compliance.

That is why we are here. Our aim is to provide you with objective, transparent

inormation on the dierent options available to you, to ensure that when you make

these important decisions, they are the right ones or you and or your business.

Some common questions to consider

| Pg 3


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The path to sel-employment is like a journey. Like any journey, you need to make sureyou are adequately prepared beore you start out. So beore you make any decisions about

becoming sel-employed and the way you want to work, think about the practicalities o

working or yoursel and the skills you might need to ensure your journey is a successul one.

Some o the undamental questions to ask yoursel include:

Are you really in a suitable position to make sel-employment work?

Do you have contacts in the industry to approach or work?

Will you secure your own contracts or nd them through an agency?

Do you have sucient nancial security to see you through the peaks and troughs

in your cash fow as you work to establish your business?

Do you have the sel-discipline to actually sit at your desk every day and run your

business, without getting distracted by social or amily matters?

Whichever way o working you choose; when you work or yoursel you are the secretary

as well as the boss; the fnance director as well as the sales manager. You need to be

committed and motivated to work every day. Are you ready or it?

Do you have what it takes to run a business?

Have you thought about the practicalities o actually running your own business?

How are you going to market it?

Who are your customers and how will they nd you?

Is your business seasonal i so, what happens when things go quiet?

You may have one or two initial contacts or commissions, but what happens ater that?

It is undoubtedly an exciting time and addressing these issues should all be part o the

overall process, but make sure you do take the time to address them. You are starting a

new career. Creating something new. You may not get a second chance to make it work, so

be realistic, think creatively and enjoy it.

Can you handle the administration?

Working or yoursel is not like working or a big company, with whole teams dedicated to

policies and paperwork. As well as doing your own job, you are ultimately responsible or all

the back-ofce administration, too. Do you have the organisational skills to cope?

It does not necessarily mean you have to do absolutely everything yoursel, but i not, you

need to be organised enough to fnd someone else to do it.

Dealing with the basics

Pg 4 |


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| Pg 5

Get help where you need itFinally, be prepared to bring in help where you need it. No-one can be a master o everything.

Regardless o how you decide to operate your business, there are resources to help you,

specialist advice you can call on or just extra hands when you need them. Look or ways

to ree up your time so you can ocus on those parts o the business you are best at, while

someone else looks ater the rest.

Finding a good accountancy partner can be a crucial piece o the puzzle. When you are

making critical business decisions, you need to base them on the most accurate, up-to-date

inormation available, so ensuring your accounts are in perect order, easily accessible andregularly updated, can make all the dierence.


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Pg 6 |

No matter what industry you work in or the type o work you are

planning to do, your broad options are the same when it comes to

deciding how to run your business:

Operating as a limited company.

Working as a sole trader.

Joining an umbrella company.

Working through an agency payroll.

Over the ollowing chapters o this guide, you will learn more

about each dierent option what it means, how it works, the

benets, and any drawbacks. The right one or you will depend

on your circumstances. Some options might be more common

in certain industries than others, so you might want to ollow a

similar route. It is up to you.

Our aim is not to push you in a particular direction or advise youon a specic course o action, but to give you the inormation you

need to make an inormed choice.

Dierent ways o working


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| Pg 7

Working as a limited company is an increasingly popular option or many sel-employedproessionals. While this option carries the most responsibility, it is also potentially the

most tax efcient way o working, meaning you get to keep more o what you earn.

The frst step is to set up your own limited company. You need to register it at Companies

House and you will have to fle company accounts and Corporation Tax calculations every

year with the HMRC. Depending on your turnover, you may also have to fle VAT returns.

More than likely, you will be the director o your company. You will thereore be

responsible or the day-to-day running o the business and or ensuring the company

meets its fnancial and legal obligations, such as paying its tax on time.

What are the requirements?

Setting up, owning and operating a limited company is a major commitment. Once you

decide to go or this option, you will be responsible or every step o the process and

or ensuring they are all managed and completed correctly. There are strict legislative

deadlines - and harsh penalties i you miss them.

Incorporation

This is the frst stage o the process o establishing your own company. It is covered in

detail in our Guide to Setting up a Limited Company, but registration itsel is a relatively

simple process.

Directors responsibilities

According to the Companies Act 2006, all private limited companies must have at least one

director. Typically, you will perorm this role yoursel. It is the directors legal responsibility to

ensure that the company meets it obligations and that it complies with the relevant legislation.

Administration and compliance

Ensuring the company meets its obligations and operates compliantly creates a degree oadministration. You will be responsible or fling company accounts, or arranging payment

o Corporation Tax, National Insurance and PAYE obligations. I your turnover exceeds the

VAT threshold (currently 73,000, but it can change so check with HMRC) you will also need

to register or VAT and fle VAT returns.

Being the director o a company brings considerable responsibility, administration and

bureaucracy. However, working with an accounting partner you can trust, like Brookson, can

help to minimise this side o things. I you are unsure about what it entails or whether it is

right or you, then please eel ree to speak to us.

Operating as a limited company


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Benets o a limited companyThere are a number o benefts o working as a limited company. We have outlined some o

the major ones below. They are also all covered in more detail in our Guide to Setting up a

Limited Company.

Limited liability

In simple terms, i you run a limited company you are legally protected should things go

wrong, so it is less risky or you personally.

Separate entityA limited company is a legal entity in its own right. This means that everything rom the

company bank account, to the ownership o assets relates to the business.

Tax

One o the main benefts o working through a limited company is that you can beneft

rom a more tax efcient way o running your own business.

Perception

I you plan to do business with larger companies, it can help i you are working via alimited company as it presents a more proessional image.

Protection

As well as the limited liability protection mentioned above, once you have successully

registered your company, your company name is protected by law.

Ownership and succession

As (usually) the sole shareholder in your company, you own the business. It is ar easier to

transer ownership, or part ownership, o a limited company, than it is with a less ormalbusiness structure.


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| Pg 9

Your responsibilitiesAs a company director, you also have to be prepared to take on certain responsibilities. Again,

these are covered in more detail in our Guide to Setting up a Limited Company.

Directors have to abide by a number o duties as defned within the Companies Act 2006. The

seven general duties can be summarised as:

Duty to act within your powers as a company director.

Duty to promote the success o your company.

Duty to exercise independent judgement.

Duty to exercise reasonable care, skill and diligence.

Duty to avoid conficts o interest.

Duty not to accept benets rom third parties.

Duty to declare interest in proposed transaction or arrangement with the company.

As a director, it is your responsibility to manage the company in accordance with its Articles

o Association, which you will confrm when you establish the company, and company law.

These include a number o specifc fnancial and legal responsibilities.

Financial responsibilities

Company Accounts

All limited companies have to maintain accurate accounts. As a director o your company,

it is your responsibility to ensure these accounts are completed and maintained to the

required standards.

Changes to the accounting reference date:The accounting reerence date is the date to which the company accounts are prepared on

an annual basis. I this needs to change or any reason, it is the directors responsibility to

inorm Companies House o the new date.


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Pg 10 |

Corporation Tax Returns:A Corporation Tax return must be fled with the HMRC and any tax liabilities that are due

must be paid by the imposed deadlines.

Legal responsibilities

Annual Return

The annual return must also be sent to Companies House each year, generally on the

anniversary o the company date o registration.

Change of registered ofceI your company moves, or you need to change the registered ofce or any reason,

Companies House needs to be inormed so the records can be kept up-to-date.

Change of directors

You are also responsible or updating Companies House i there are changes to the

company directors, shareholders or company secretary.

There are a lot o things to consider when choosing your business structure. The best

option or you comes down to your own individual circumstances and your plans andobjectives or the uture. Either way, you should always seek proessional advice beore

starting up in business.

Best option or you?

Setting up a limited company might be the right option or you i:

You are committed to working or yoursel, long-term.

You are comortable with the extra responsibility (or you work with someone who is).

You want to optimise your earnings.


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| Pg 11

This is oten seen as a simpler way to start up in business, as there is less administration andew, i any, set up costs. All you have to do is register as sel-employed with HMRC and fle

a sel-assessment tax return each year. However, its a riskier option. You will be personally

responsible or any company debt, so your personal assets may be at risk. It is also less tax

efcient, so the chances are you will pay more tax.

Working as a sole trader is still a major commitment. The ultimate responsibility still sits

with you to manage your business efciently. There are tax advantages over working through

PAYE, but these are currently not as great as those available through a limited company.

However, working as a sole trader does have a number o advantages.

Total control

As a sole trader you are your business, and you are in ull control. You are responsible or

all decisions without having to consult other directors or shareholders, so you can develop

the business exactly how you choose.

No set up costs

There is no need to register your business at Companies House, so the paperwork is very

simple. Simply inorm HMRC that you are sel-employed.

Privacy

Unlike a limited company, where all inormation concerning the business, including

directors details and annual accounts are made public, inormation about sole traders is

kept totally private.

Capital allowances

I you need to purchase equipment or your business, or example vehicles, tools, IT

equipment or business urniture, you may be able to claim tax relie on these purchases in

the orm o capital allowances.

Flexibility

As you are the sole decision maker, it is much simpler to adapt your business to the

changing demands within the market you serve. You can change prices and vary services,

making decisions quickly and acting on them switly, keeping you agile and competitive.

Simple accounting

Although you must maintain detailed records o invoices, expenses and accounts and fle

an annual tax return, the actual accounting process is much simpler or a sole trader than

or a limited company.

Working as a sole trader


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Pg 12 |

Prot retentionAs a sole trader, you personally retain all the profts o the business.

So, while setting up a limited company may ultimately more tax efcient, working as a

sole trader is much simpler, requires a lot less administration, and costs less to run.

Your responsibilities

As a sole trader, you still have to be prepared to take on certain responsibilities. These are

covered in more depth in our Guide to Setting up as a Sole Trader.

Once you register as sel-employed and become a sole trader, it is up to you to manage all aspectso your business, rom paying your tax through to meeting health and saety regulations.

Tax self-assessment

Being sel-employed, you are responsible or completing and fling your sel-assessment

tax return. This is a personal tax return which declares your income, expenditure and

business proft or the previous tax year, and orms the basis o your tax and National

Insurance liability.

Paying your tax billOnce you have submitted your sel-assessment return showing your profts or the previoustax year, you are required to pay your tax bill or the year. This usually takes the orm o

two payments, reerred to as payments on account. The frst payment must be made by

31st January ollowing the end o the tax year, and the second payment must be made by

the 31st July.

National Insurance Contributions (NICs)

Sole traders also have to pay two kinds o NICs.

Class 2 National Insurance is payable at a fat rate o 2.50 per week and is

collected twice a year via direct debit on 31st January and 31st July.

Class 4 National Insurance is calculated as a percentage o business prot each

year and is dealt with separately through the sel-assessment tax return and

payable at the same time as your Personal Tax bill.

Record keeping

Keeping accurate business records is vital or completing your tax return or answering any

questions HMRC might have.


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| Pg 13

Basic records you must keep include:

A record o all your sales and income (eg invoices and bank statements).

A record o all your purchases and expenses (eg receipts and bank statements).

Other records you may want to keep include:

Invoices you have issued and receipts you have received.

Details o hire purchase and leasing agreements.

Bank and building society statements.

Details o any money taken out o the business.

Details o any private money brought into the business.

You should keep business records or at least seven years.

Legislation

As a business owner, you are also obliged to keep ully up-to-date with any legislation that

may have a direct impact on the operation o your business.

VAT

I your turnover exceeds the VAT threshold (currently 73,000, but check with HMRC) you

will also need to register or VAT and fle VAT returns.

Proessional Advice

I you are considering running your own business as a sole trader, it is best to seek advice.

Talk to other sole traders and sel-employed proessionals; speak to accountants and

solicitors to get their proessional perspective on your ideas.

The key thing to remember is that although you are ultimately the person responsible or yourbusiness, you do not have to do it all alone. Using a proessional service or help with the fnancial

or administrative side o the business will ree you up to spend more time developing it.

Best option or you?

Working as a sole trader might be the right option or you i:

You want to minimise your administrative burden.

You want to set up easily, with minimum cost.

You are unsure about committing to setting up a limited company.


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You may well have heard o IR35, but what is it and what does it mean or your business?

In simple terms, IR35 is about disguised employment. It aims to stop people taking

advantage o the tax system by claiming to be sel-employed when, or all intents and

purposes, they are perorming the same job as an ordinary employee.

In other words, i you are providing your services to a client on a sel-employed basis, you

need to be able to prove that you really are sel-employed. I you are unable to do this, it

could be deemed that you are working as a disguised employee. I this happens, you run the

risk o being taxed as an employee, which is less benefcial than i you were taxed as being

sel-employed. The IR35 legislation targets sel-employed proessionals working throughlimited companies, but the principals also apply to sole traders.

The legislation is hugely detailed. However, several court cases and judges decisions

illuminate a ew basic points. I you can answer yes to most o the questions below, it is

unlikely you would all oul o IR35.

Do you have the reedom to do the work as you would like it to be done?

Are you able to turn down work rom a client, or example i you have another projecton at the same time?

Can you ask someone else to do the work on your behal?

Do you work or several dierent clients?

Do you provide your own equipment?

Do you have a nancial risk in the project (i.e. do you correct errors in your owntime, or give adjustments or reunds or poor service).

Do you regularly promote your business via advertising, networking or other

marketing?

Do you have a separate business telephone / website / insurance / oce space?

Do you invest in training?

Do you maintain detailed accounts?

Are you VAT registered?

Complying with IR35


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| Pg 15

So what happens i you are caught by IR35?I you are caught by IR35, then all ees or that contract are deemed salary and the

employee rates o tax and National Insurance will need to be deducted. In addition, any

expenses that you claim as tax deductible will be reduced, as the legislation puts you in a

position very similar to that o an employee.

I you are worried about your IR35 status, or about how IR35 could impact your plans to go

sel-employed, it is best to seek advice and have your contract and working arrangements

reviewed by an expert. At Brookson, we oer unlimited IR35 reviews or all our limited

company customers.

What are my other options?

I you decide that neither working as a sole trader or setting up a limited company are right

or you at this time, the remaining options are joining an umbrella company or, particularly

or contractors, working on a PAYE basis with your employment agency.

Both options are similar in that you are not responsible or running a business. In addition,

tax issues relating to your employment status do not apply because your earnings are taxed

under PAYE.


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Pg 16 |

Joining an umbrella company

I you choose to work through an umbrella company, you become an employee o thatcompany. It then contracts out your services to the end client or agency. The umbrella

company pays you directly ater making the necessary deductions or tax and National

Insurance contributions on a Pay As You Earn (PAYE) basis.

You remain an employee o the umbrella company regardless o whether you move to a

new assignment or start a project with a new end client or agency. The choice o umbrella

company employer is entirely up to you and you can build up a long-term relationship

independent o the client or the agency you are working or.

In terms o administration, there is none. As an employee, it is all taken care o or you. Theumbrella company will, however, retain a margin rom the revenue it receives or providing

your services. This is why, i you are working via an agency, they may oer you a higher rate

o pay i you wish to become an employee o an umbrella company than i you were to be

paid via the agency payroll.

Tax relie on expenses

There is the opportunity to claim tax relie on certain expenses incurred in doing your job,

but the tax advantages are not as broad or varied as or limited companies or sole traders.

A major eature o umbrella employment is the potential to claim tax relie on travel andsubsistence expenses while working at a temporary workplace. There are, however, a number

o HMRC tests to pass beore you can beneft rom this tax relie.

This beneft is only available to umbrella company employees who are committed to

working on more than one assignment during their time as an employee o the umbrella

company. Thereore, i you only undertake one assignment as an employee o the umbrella

company and then return to ull time employment, your travel costs will not be tax

deductible.

I at any point during your assignment you expect to be working at the same end clientsite or more than 24 months, then you can no longer claim tax relie on your travel and

subsistence expenses.

Best option or you?

Joining an umbrella company might be the right option or you i:

You are unsure whether going sel-employed is right at this time.

You want a simple, ecient and reliable way o getting paid without any

administrative burden.


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| Pg 17

You may be able to work as an employee o your agency and thereore be taxed as an agencyemployee. This is more common in certain types o work, such as contracting, than others.

Working through an agency payroll is similar to working as an employee o an umbrella

company. There is no administration to deal with and you will be paid ater deduction o all

relevant taxes. However, you are unlikely to be able to claim tax relie on expenses which you

incur while doing your job.

Working through an

agency payroll

Best option or you?

Working through an agency payroll might be right or you i:

You are looking more or occasional temporary work.

You will not be claiming tax relie on any expenses.


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Pg 18 |

Choosing the best option or you

When deciding which way to run your business, it is important to

remember that there is no right or wrong answer. Each o the our

ways o working explained in this guide have their own benets

and their own drawbacks. It is a question o deciding which

option suits your particular circumstances best.

Some o the key points you need to consider are:

The nature o the business you are thinking o running.

The norms o the industry you will be working in.

The level o administrative support you will have, i any.

Your expected turnover and prot.

Your growth plans.

The level o risk you are comortable with.

How important customer perceptions are.

Any plans you have or the uture, such as pensions and

retirement.

Take time to think about these considerations. Chat them

through with amily and riends, or other people you know who

already run their own businesses.

Talk to us as well. We have been doing this or over 15 years,

so we can provide all the inormation you need to make your

decision. But only you can make the decision itsel.


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As you have seen, there is a lot to think about when deciding how to run your business. Oneo the most important actors, o course, is the fnancial implications how will your chosen

operating model aect your fnances?

We have drawn up an example below which shows you in real terms the impact the dierent

ways o working would have on your take-home pay, across range o incomes.

Assumptions

We have assumed that 5,000 o expenses can be claimed across the limited company, sole

trader and umbrella company options. I you do not intend to claim or expenses, then theAgency PAYE model may be a better fnancial option than the umbrella company, because

an agency does not deduct its margin rom your income.

The limited company and sole trader businesses have joined HMRCs Flat Rate VAT Scheme.

This is a special, simpler VAT scheme specifcally or small businesses.

Finding an accountancy partner to help you

Remember, you are not alone. You do not need to do everything all by yoursel. Whichever route

you take, you should be ree to grow it and develop your business in line with your plans.

Working closely with an accountancy partner, like Brookson that you can trust, will give

you the reedom to ocus on your business, and the peace o mind o knowing that your

administration and fnances are compliant, up-to-date and in order.

Comparing the fnancial benefts

40,000 33,649 (84%) 31,482 (79%) 27,857 (70%) 26,779 (67%)

50,000 41, 864 (84%) 38,573 (77%) 33,974 (68%) 32, 789 (66%)

60,000 48, 264 (80%) 44,708 (70%) 39,533 (66%) 38,153 (64%)

70,000 54,425 (78%) 50,843 (73%) 44,763 (64%) 43,516 (62%)

Take-home pay ()

Overallincome ()

Limitedcompany Sole trader Umbrella Agency PAYE

| Pg 19


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Pg 20 |

Here at Brookson, we are not your everyday accountants. We have re-invented accountancy.

Whether you are a contractor, reelancer or sel-employed proessional, we believe that you

should always know how your business is perorming.

We have a 40-strong team o experts who specialise in helping sel-employed proessionals to

run their businesses. Specialists who work closely with you every step o the way, to help you

work more efciently and to make more o your earnings potential.

We have a great range o services, too. So i you choose to work as a limited company, as a

sole trader or through an umbrella company, we have the knowledge and expertise to help.

Get Connected

I you are thinking o setting up a limited company, take a look at , our unique

accounting technology.

With , we reconcile your accounts or you on a daily basis, so you dont have to. It

connects everything invoices, bank statements, expenses, VAT, personal tax returns all

in one place. It means you can see clearly how much cash you have in the bank, and the

one number you can saely withdraw, 24/7 vital i you have a big bill to settle or a one-o

purchase to make.

You can delve as deeply as you like into your business fgures simply by clicking on an

entry. Or i you preer a simple overview, you can view all the key data you need on the

single Dashboard screen. Either way, your details are updated daily, so you know you are

working with the very latest inormation.

Thats not all

We reconcile your accounts or you on a daily basis so you dont have to. With the closest

thing to real time accounting, in simple terms you know where you are. How much you owe

the taxman, what you are due and what you can spend, every day.

And i you still want more

Connect comes with a range o antastic time-saving eatures. The Snap and Run App

enables you to submit receipts on the go. There is a Planner App to keep track o key dates,

an IR35 App to keep track o your IR35 status. We keep all o your key documents in the

Storage App and there is a Knowledge Centre App packed with valuable inormation about

running your business.

is not only unique in the market. It is the uture o small business accounting.

Read our brochure or more inormation on how can help you take yourbusiness fnances to another level.

More inormation about Brookson


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I you have any questions about any o the issues covered in this brochure, or i you wouldjust like to talk to someone about your options, simply call us on 0800 230 0213 and one o

our small business specialists will be only too glad to help.

Alternatively, you can chat to us online at www.brookson.co.uk. We are here six days a week

and we would love to hear rom you.

Take our FREE Financial health check

We oer a ree fnancial health check to all new customers, totally ree o charge. We will ask

you a ew questions about your business, and then we will run through all your options. You

will even receive a brie fnancial breakdown, showing your take home pay ater all deductions

or each option. Theres no stress, no uss and no pressure to decide until you are ready.

Let Brookson bring you up to date

Limited company, sole trader, umbrella company, agency - whichever option you choose,

we have the products, services and people to help. We will work closely with you to bring

your fnances completely up to date, making sure you know precisely how your business is

perorming, 24/7.

Its good to talk

Are you ready to start working or yoursel?

Let us help you understand your options:

0800 230 0213

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