Becoming self-employed – any pointers?

Friend of mine asked about becoming self employed in the deluded understanding that because I own a share of the firm I work for then I must know about that sort of thing.

Anyway, anyone got any pointers I can give him? He’d be doing the one man band consultant type thing and was asking about being sole trader or limited company or LLP and I really don’t have a clue! Also can he claim back any cash on laptops and cars and phones and stuff? Any other info greatly appreciated.

Ta!

That’s a very broad and deep subject! The best option depends on so many things – investment / equipment, turnover, stock, VAT etc etc. Is he married (does his wife work – can he give her dividends etc etc).

My main advice would be to start with a good accountant – one that specialises in small firms / self employed.

For a ltd co then computers are deductalbe (over a few years iirc) cars are not woth it due to BIK and depending on a different set of variables he’d probably / possilbly be better off using a private car and charging mileage. IME phones are totally deductable.

Edit – most accountants are more than happy to give this initial setup advice for free: on the basis that it builds a relationship with their future client.

Dont forget to save 25% of what he earns for the tax man.Put it in a seperate account and dont touch it its amazing how it mounts up throught the year and looks tempting.

Bump for the daytime slackers. :D

“deluded” “one man band consultant type thing”
thats in the Go It Alone book by Geoff Burch.
Yes definately have a chat with an accountant and/ or the HMRC.
Have a look on the HMRC website.
http://www.hmrc.gov.uk/startingup/

I work as Ltd co.
You can set up using an “off the shelf” package, but, I used an accountant to set up just incase I had any issues.
Easy to run, pay yourself a basic wage then every so often pay yourself a dividend. Business expenses deducted from your turnover. 21% corp tax on your profit. No NI contributions.
:D

How much money (profit) does he expect to make?

There’s varying points of tax efficiency to being a sole trader or a Ltd Co. depending on your turnover/profitability etc.

I recently helped a forumite offline with some info from Mrs Stoner Sr (accountant), the most useful of which in the absence of any other information about your business plans is to book a couple of hours with a local accountant to advise you on the optimum structure for your business based on your circumstances. You dont have to put them on retainer or anything, just a couple of hours at their chargeout rate, say £50 an hour for pure advice.

You may want to look at VAT registration, flat rate VAT as well as Ltd Co., PAYE, Sole Trader, emplyt the wife, other salaried income, other investment income, Divis etc.

Dont forget to save 25% of what he earns for the tax

I got told to put 30% away for tax, which am doing. If it is 25% than I will give myself a 5% bonus at the end of the year :D

We reserve 15% of turnover as we go to cover corporation tax at the end of the year. Its there or there abouts each year.

You’ll need to provide for VAT as you go (quarterly settlement if you’re registered)

I’m about to take on a small side project, in addition to my salaried job. It’s very small – i.e. 5% of my current salary – but could lead to more so I want to do things properly.

Assume I just ring HMRC for a chat and they’ll send me a form at year-end on which I declare the extra and pay the tax on it?

char *findAnAccountant;

<snort>

MT I think you need to do the self-assesment tax return and declare it all there.

I recently registered self employed and was amazed how long it took HMRC/NI to process my details. They need to speed that up if they want the private sector to replace public sector job losses.

Mike T – I’ve just done what you are doing. Phone HMRC, they are helpful. You’ll need to register as self employed and then you’ll get sent a tax return in a year hence. Watch out for being billed for more NI contributions, you can fill in a form for exemption if your earnings will be less than £5k in the tax year. Also they do free ‘how to do the forms/claim expenses etc’ courses so worth signing up for those if you think your affairs will be relatively simple and you can do it yourself…

In my experience accountants aren’t necessarily the best people for this advice. They tend to think too much in terms of the here and now, tax rules and complicated schemes which might save you some tax but cost you in fees! I’ve always preferred the advice of commercially aware lawyers (i.e. a proper commercial law specialist not they guy who helped you buy your house / divorce your wife etc). They always seem to think ahead more, to what happens in 3 years time if you want to sell up, close the business, bring on staff or a partner or raise investment etc. Now admittedly with my ventures there has always been multiple people involved and therefore it is a bit more complex.

A good commercial lawyer will be well versed in Tax issues (and see what lots of people with lots of different accountants do to juggle these issues) whereas a good ‘local’ accountant will mostly only see things there way – and IMHO have a rigid view of ‘company structures’.

I did the same thing, went self-employed IT contracting about 18 months ago. I was put onto a company of specialist accountants, SJD, which have been worth their weight in gold. They handle everything, deal with HMRC for me, handle my limited company accounts, and also do my own personal tax return. I take a small salary and take everything else in dividends. On the SJD website, there is a bunch of articles about being a contractor which helps a lot, but it is a very complex thing to do without their assistance IMO.

ta :)