Contracting as a Sole Trader

This should be the easy way to do things but generally it isn’t!  Personal risk and adverse tax rules make this a second choice for most freelancers.

The Sole Trader

Being a sole trader is the simplest way to get started in business. Once you have informed the government agencies of your intentions to become self-employed, you can start trading right away. As a sole trader, you can quickly adapt to changes in your business with minimal bureaucratic interference. However, a sole trader is also ultimately responsible for any liabilities should anything go wrong and is personally liable for all the trading debts of the business. Accounting requirements are less rigid but they are not non existent; profits must still be calculated accurately.

Advantages and Disadvantages:

 For: Easy to start; Easier to calculate tax; Less Accounting; Fewer administrative requirements.

 Against: Personal Liability; time consuming administration; less favourable tax treatment; less marketable.

It is worth spending time considering whether the Sole Trader structure is right for you. Most agencies and many direct clients prefer to deal with limited companies as the limited company significantly reduces the risks for the end client or the Agency associated with having to determine whether the self employment is genuine.

 

Play the Numbers

Instant comparison between the forms of business; see the effects of legitimate expense claims, consider Flat Rate VAT or just adjust hourly rates and time spent. Look for your personal jackpot.

Help me decide

Talk to Us

Of course in the end there is no substitute for targeted personal advice. Your individual circumstances matter. You need our expertise. Get a free initial consultation – probably the best freelance decision you will make!

Help me decide

Instant Information

Our tax calculator is speedy. It is designed to give you results as you enter valid data – on the spot, in front of your eyes! We update regularly to make sure it always reflects changes in tax law and practice.

01244 625 500

Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage