Sole
Trader
In theory, it should be perfectly feasible to operate as a sole
trader, producing your own accounts and completing a self-assessment
income tax return at the end of each year. You would need to advise
your local tax office of your status and you would be responsible
for paying your own tax and class 2 and class 4 National Insurance
contributions.
Limited
Company
In practice, however,
this is not always a suitable way of proceeding because the majority
of clients and interim providers insist that candidates operate
under the banner of a limited company.
There are five very sound reasons for this:
- To avoid employment agency legislation including possible PAYE
complications
- Your clients avoid the legal burden of employing a permanent
member of staff (minimum wage, redundancy, SSP, maternity leave
etc)
- Your clients have no hidden employment costs (pensions, holiday
pay and other long-term overheads)
- Your clients have no responsibility to operate PAYE on your
consultancy fees. This is extremely important, since if you are
a sole trader, the Inspector of Taxes could dispute your status
and, in certain circumstances, look to your client for income
tax and National Insurance on your fees, long after employment
has ceased
- Being employed by your own company is indisputable proof that
you are not employed by your client (although not for IR35 purposes)
For the reasons given above, you may find that your decision has
been made for you by your ultimate client. A large proportion of
interim providers will only recruit candidates who have their own
limited company.
At the same time, having your own company looks professional, especially
if you have a well-chosen name, and this could make finding new
assignments easier.
In certain circumstances (when working outside IR35) there are
opportunities for the payment of dividends which could offer National
Insurance and income tax advantages, and even those working under
IR35 may be able to attract non-IR35 income in between interim assignments.
The downside of running
under a limited company is that you become both employer and employee,
and as a result will have to bear the employer's responsibility
for National Insurance contributions currently 12.8% on all earnings
above £4,615. However, we strongly recommend clients to build
this amount into their daily rate. |
