There is no legal difference between a freelancer and a contractor. Both are self-employed and both are treated the same way tax-wise. The terms are commonly used to describe slightly different ways of working.

Freelancers tend to works from their own premises for several clients; frequently at the same time; and often in the creative sectors. Contractors tend to work for one client at a time on a specific assignment and for a specific length of time; work is usually at the client’s premises; often in areas such as IT.

The definitions are for guidance as there is often overlap between freelancers and contractors.

Sole trader is the simplest legal set-up, but this is less tax efficient for businesses making higher profits.

Limited companies are also easy to set up (they also provide limited liability to the owners plus opportunities to save tax) but they are much more complicated to run. Contractors tend to use limited companies because some companies won’t deal with sole traders.

There are lots of things to consider when deciding whether to set up as a sole trader or limited company which is why you should see an accountant early.

Not necessarily. Generally, you have to register for VAT when your sales in the previous 12 months exceed £85,000. Whether you actually need to register depends on your services, as some services are exempt from VAT.

There may be circumstances where you could save tax by registering for VAT even your sales are below £85,000.

As with all tax, it’s not black and white. But we can help.

• In our experience, the most difficult part can be taking the plunge and actually getting started. It’s a nerve-racking time but we can show you what’s out there to give you the assurance you need to before starting your own business. We can help you remove some of the barriers that are stopping you from getting started.
• Remember that millions of people have started businesses, from all different backgrounds. Sometimes people have spent years in industry and want to leave to follow their dreams. Others may be set to return to work after a break and are looking for greater flexibility. For all reasons and backgrounds, people are leaving their jobs to start their own business.
• But you have to make sure you set everything up correctly and that you keep up with your paperwork to avoid making mistakes that could be costly.
• We have lots of experience of helping people to set up a business and we know what ‘good’ looks like.We will help you put things in place that will give your business a great foundation.
• Please speak to us as soon as you are thinking of starting your business so we can set you on the right path.

Setting up a Limited Company is really quite straightforward and can be done quickly. You can have your company in less than two days, in fact. Once you have registered your company, you will need to open a bank account. We can get you set up and ready to start sending invoices on FreeAgent in matter of days. There will be decisions to make: Do I register for VAT? Do I set up a payroll? To make sure that you are properly set up, we will walk you through it step by step.

As a contractor you will probably be familiar with ‘IR35’ but may not know what it means for you. IR35 is tax legislation designed to stop people avoiding paying tax by working through a third party eg Limited Company, where you would otherwise be considered an employee.

If you are challenged under IR35 you may end up paying additional income tax and NI contributions. We can work with you to review your contracts and make sure you are fully compliant so that IR35 won’t affect you. There are fundamental changes to the IR35 rules which will come into effect in April 2020.

Many contractors use an umbrella company. Essentially you become an employee and a company that is separate from your engager. You will receive your pay as an employee with income tax and national insurance deducted at source.

Generally, umbrella companies are the least tax efficient way to contract. As a rule, limited companies will save you tax.

Two reasons for using umbrella companies: Either your engager insists that you use one because your assignment is caught by IR35 or: you are just starting as a contractor and it is easier to keep the umbrella company than to wind up your own company.

• Not necessarily. Generally you will have to register for VAT when your sales in the previous 12 months exceeded £85,000.
• Whether you actually need to register depends on what you sell, as some items are exempt from VAT.
• There may be circumstances where you could save tax by registering for VAT even your sales are below £85,000.
• We can help.