When you work for yourself, you either operate as a sole trader or set up your own limited company. Which is right for you depends on your circumstances, but here are a few pointers to set you in the right direction.
What will your turnover be?
If you think you’re going to make under £20,000 (we’re not talking profit here, just the amount you invoice for), there’s a good chance the sole trader route will be most cost-effective. As a sole trader, your tax reporting responsibilities are much less than that of a limited company director, which means accountancy costs will be lower (you may even want to do it all yourself).
If your turnover is greater than £20,000, you may find the tax benefits of operating as a limited company outweigh the extra accounting costs and responsibilities. Talk to an accountant to get an idea of what you could save.
Will your clients be big businesses?
While most private clients won’t give two hoots if you’re a sole trader or limited company director, you may find bigger clients – especially multinational companies – will only do business with limited companies. Something to bear in mind depending on your target market.
Do you want to separate business and personal finances?
As a sole trader, you are the business. This includes your personal finances. So if a client successfully sues you, you may find you have to pay them out of your personal account. Consider getting professional indemnity insurance to help protect you from this.
As a limited company, your personal finances are completely separate from the business. So if a client sues, they’ll won’t be able to grab your personal finances.