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Any person or individual who decides to start his own practice or business is referred to as a Sole Trader or Self-employed individual. The first of these is Register as self employed with HMRC and, most likely, Set up as a sole trader or freelancer. The business can enroll with HM Revenue and Customs (HMRC) anytime up to October 5, starting from the business’ second tax year. If the business is already registered, a sole trader can use the online service to:
According to the UK Government, starting business as a sole trader is the easiest way to start a business in the United Kingdom. For a freelancer, to start working as a sole trader, the requirements are:
Unless there is any industry-specific license needed, a freelancer is free to start working. There is no need to register with Companies House because although it is a legitimate business, it isn’t a company.
It is very simple and straight forward to run a Limited Company.
There is more opportunity for tax planning through a Limited Company but only experienced specialist freelancer accountants can guide the business about this. The most important savings working through a Limited Company over an umbrella are National Insurance and the Flat Rate Value Added Tax (VAT) Scheme. All Umbrella Companies in the United Kingdom operate as PAYE. This means that tax is paid in the same way as a permanent employee
The flat rate scheme is an incentive provided by the government to help simplify taxes. The amount of Value Added Tax (VAT) a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to the clients and the VAT the business pays.
Example:
A freelancer bills a client for £1,000, adding 20% VAT to make the total bill amount: £1,200. As an IT consultant, the VAT flat rate charged for the business is 14.5%. Hence, the flat rate payment will be 14.5% of £1,200, or £174.
