Everything you need to know to manage your accounting and take control of your business finances, from managing your cashflow to paying taxes.Frequently Asked Questions asked by the Self Employed to accountants answered by Easy Accountancy Accountants for Freelancers, Sole Traders, and Small Businesses.Whether you are a multinational limited company or a single person sole trader it is important that you have a structured approach to your invoicing or you may lose.Limited Company Advantages Disadvantages SJD Accountancy Accountants UK Is going limited as a contractor a popular option Well.SJD Accountancy has 1.Limited Company with less than a handful ever going back to permenant employment.If you are considering the Limited Company option, read our guide below to understand the advantages and disadvantages of going Limited, the responsibilities that come with company ownership and the administration duties it will likely require.Why not also download our free 6.Download our Contractors Guide.Setting up your own Limited Company.Best Bookkeeping Software For Sole Trader Advantages' title='Best Bookkeeping Software For Sole Trader Advantages' />This couldnt be simpler, if you started now you could be finished forming your own Limited Company in five minutes providing that is, you know your name, where you live, when you were born and the name you would like for your company.Companies House will then usually set up your company within three hours.The government has really done a wonderful job in making it as easy as possible for people to open their own Limited Company, the last thing they want to do is put barriers in the way of any new business growth.Most clients tell us they really cant believe just how quick and easy the process was.It just takes three easy steps.Choose a company name Choosing a company name can be a challenge, and sometimes over thinking what name you should use can become frustrating.Our short guide to Choosing a Limited Company name offers helpful hints and tips on choosing the right name to suit your business.You can then make sure that your company name is available by using our free company name checker, its that easy.Form your Limited Company This will take five minutes and your company should be set up within three hours.Forming your Limited Company costs 1.VAT on our website, which is one of the lowest fully inclusive prices available.This includes Help organising your Company Bank Account, VAT and PAYE registration, advice on the optimum share structure of your company and complete company formation service with all legal requirements so that you can start trading as a limited company.You can of course find cheaper prices on the Internet but they rarely include everything you need, such as VAT and PAYE registration, each of which can cost as much as 7.VAT from other accountants.Plus, cheap online formations often dont provide any telephone support.And finally, appoint an Accountant Some contractors starting out may think, do I need an accountant or can I do my accounts myselfOf course you can do your accounts yourself.HMRC and its multitude of tax forms.However using an accountant will save you time, money and the stress of worrying about your taxes.You have enough on your plate and the last thing you need to worry about is missing a tax deadline which could result in a fine if not sent in on time.Deciding on the right accountant.Deciding on the right accountant can be a difficult decision, so make sure you choose the right accountant that is perfect for you.Visit our what will an accountant do for me page, for a full comprehensive list on what an accountant should do for you.As a client of SJD Accountancy, all your company needs and personal tax affairs will be covered by our complete business package for a fee starting from 1.VAT per month. This includes Year end accountsCorporation tax.Payroll bureau. Dividend administration.Dealing with HM Revenue and Customs and Companies House.Quarterly VAT Calculations Support with Annual Returns.Personal Taxation.Access to your own dedicated accountantfor all help and advice.Free bookkeeping software.Check our packages for more detail.For further advice freephone our SJD New Business Team on 0.Advantages of a Limited company.Higher take home pay Youll typically take home around 7.Umbrella Company.Claim on a wider range of expenses Anything that is solely classed as a business cost can be claimed back on expenses.Trading through a Limited company means you can claim on a wider range of expenses such as accountancy fees, equipment, software, phones, travel, Internet and much more.Read our Contractors Guide to Expenses for more information.Entitled to the Flat Rate VAT scheme The Flat Rate VAT scheme can generate thousands of pounds of extra profit a year, with most contractors choosing to apply for this VAT scheme.Visit the following page to read more about the Flat Rate VAT Scheme.Personal assets are covered As a non limited business, personal assets can be at risk if the business fails, but this is not the case for a limited company.As the shareholder you can not be held personally liable for the debts of a limited company, meaning your personal assets are not at risk.Complete Control of your Business You keep complete control of your financial affairs meaning you do not have to risk your money with any third party administrator or umbrella company.Ease of use Running your own business isnt difficult your personal accountant will help manage your finances.Working through your own limited company does require a certain level of commitment but typically most contractors tell us they spend around 1.Greater opportunity for tax planning It goes without saying that working through your own limited company is more financially rewarding, which is only fair bearing in mind the extra responsibilities and loss of full time employment benefit.Company given more credibility Operating as a limited company often gives suppliers and customers a sense of confidence in a business and quite often other companies prefer not to deal with non limited businesses.Protection of your company name.Once your proposed company name is registered as a limited company, the name is protected by law and no one else is allowed to use it, waiting to register your company could mean you lose the name you had initially wished to trade under.Disadvantages of a Limited company.A certain amount of paperwork involved As mentioned above, there is about 1.Umbrella Company.Accounts need to be filed every year You have to file your accounts at Companies House each year, which will be on public record however your accountant will help with this.You will also have to file accounts, company tax and corporation tax calculations with HM Revenue and Customs every year, but again your accountant will help with this.Costly if contracting for a short period of time Can be costly if you have a short term contract anything less than a couple of months but it does depend on your daily contract amount then decide to go back to permanent employment as you will still be required to submit end of year accounts.Not ideal for contracts less than 2.This is only a general rule, and in some circumstances, depending on the contract, it may be more beneficial trading through a Limited Company.We would recommend contacting an accountant and asking them for their advice.For further advice freephone our SJDs New Business Team on 0.You might also find our new How to become a contractor guide illustrated infographic useful.If you are still unsure whether contracting through a Limited Company is the best solution for you, and may even require some information on possibly using an Umbrella Company, visit our Limited Vs Umbrella page.For all the latest contractor news, views, debates and competitions, why not join us on Facebook and follow us on Google.Setting up in business as a sole trader self employedBecoming a sole trader is the simplest way to get your new business off the ground.You can start trading immediately, subject to any industry specific licences or insurances you might be required to have. 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As a sole trader, you will have complete control over your business and finances.You can adapt quickly to any changes in your business, without having to concern yourself with a great deal of bureaucracy.If you run your business as a sole trader, no distinction is made between your personal and business finances.It is therefore crucially important you realise that should anything go wrong with your venture, you will be personally liable for any business debts.This isnt the case if you went down the limited company route, so it is worth spending time considering which business structure is best for you.Starting up in business as a sole trader.Sole traders do not need to notify Companies House, nor deal with any of the administrative or accounting requirements which are required of limited companies.If you decide to go self employed, you should register with HMRC.The general advice is that you should register with HMRC as soon as you start working for yourself, but you dont have rush to inform them.HMRC state that if you do start working as a sole trader you must register with them by 5 October of your business second tax year.So, if you started your business at any time during the 2.April 2. 01. 6 to 5 April 2.HMRC by 5 October 2.If you are unsure whether you need to register as self employed, you can refer to HMRCs leaflet Employed or Self Employed for Tax National Insurance here in PDF format.Different ways to register with HMRC as self employed.If you are thinking about becoming self employed, there are different ways to register with HMRC.Your individual circumstances will determine which of the 3 methods you need to use to register 1.Going self employed for the first time and HAVE NOT previously completed a tax return.If you have not previously submitted a self assessment tax return, you should register your new business online with HMRC here.By doing this, you will be registering for Self Assessment tax and Class 2 National Insurance at the same time.Going self employed for the first time and HAVE previously completed a tax return.If you are becoming a sole trader for the first time and have previously completed a Self Assessment Tax Return in an individual capacity for example, if you have received an income which isnt taxed at source such as rent or investment income you must register as self employed and for Class 2 National Insurance by completing form CWF1.Doing this will enable you to keep your existing Self Assessment account.You have been registered as a sole trader previously.If you have previously been registered as self employed, and are looking to re register, you should do this with form CWF1.Tax National Insurance.As a sole trader, your business income is counted alongside any other personal income you have for tax purposes, so accounting is relatively straightforward.Your tax is calculated via the annual self assessment process.You will have to pay income tax and National Insurance Contributions NICs on your profits.Any losses you make can be offset against your other income.When you fill in your annual self assessment form, HMRC will calculate any Class 4 NICs you have to pay on your business profits.Sole traders also have to pay Class 2 NI contributions currently 2.Tax Year. However, the Government has announced that Class 2 NICs will be abolished from April 2.This could save self employed workers 1.For more in depth information on the taxes you will need to pay when you are self employed, read our popular Sole Trader Tax Guide.Value Added Tax VATDespite registering as self employed, you will not automatically be registered for Value Added Tax VAT.You will have to register for VAT if your business turnover reaches the current VAT registration threshold during any 1.At present, the annual threshold for registering is 8.April 2. 01. 7. The current standard VAT rate is 2.When you register your business for VAT, you will need to charge VAT to all your customers.Being VAT registered means that you will be able to claim back the VAT you have paid on work related costs.It is possible that you will be better off if you register for VAT even if your annual turnover is below the annual threshold.This is most likely if the majority of your customers are VAT registered businesses, so can reclaim the VAT you have charged them.Byte. Starts 6. 0 second guide to Value Added Tax VAT for start ups and small businesses will tell you more.You may be better off using the Flat Rate VAT scheme, which provides a simple way of accounting for VAT using an annual percentage depending on your industry type.Its always a good idea to consult your accountant if you have any questions on tax and VAT matters.Business insurance for sole traders.Once youve decided to become a sole trader, you should think about taking out the appropriate business insurance cover for your new venture.Some types of insurance policies are mandatory, such as Employers Liability Insurance if you employ people, whereas others will simply provide peace of mind that your business will be protected if something goes wrong.Most self employed people will look at taking out public liability insurance and employers liability cover, as well as any other policies required for industry specific reasons, or demanded by clients.Sole Trader bank account.Once you set up as a sole trader, you will most likely want to open a business bank account As a sole trader, you can open an account with a specific name such as Peter Smith Trading As PTS Construction.There is no legal requirement to open a separate bank account to your personal one, but many sole traders elect to do so.It may be simpler for accounting purposes, and look more professional.The choice is up to you.Dont necessarily open an account with your personal bank account, as you may get a better deal elsewhere.You will often find that the major high street banks offer 1.See our guide to choosing a business bank account, which includes details of some of the current free banking offers on the market here.Other considerations when becoming a sole trader.The sole trader route is the most popular way of starting up in business in the UK, however it is not the best route for everyone, which is why we always recommend discussing your choices with an accountant or other suitably qualified business adviser.Sole traders are liable for any business debts or losses they make, or if forced into bankruptcy, whereas the liability of limited company directors is, as the name suggests, limited.Always remember, that if you become a sole trader, you can easily switch to the limited company route later on if you want to.Sole Trader Package.Our partner, Duport, has launched a new Sole Trader Package which will help you get up and running as a sole trader in a matter of hours including the forms you need to register with HMRC.The package will also protect your company name in case you want to become a limited company at some time in the future.More on starting and running your own business.Byte. Start is packed with help and tips on all aspects of starting and running a small business.Check out some of our most popular guides Starting Up.Leading a business.Funding your business.Money Tax matters.Promoting your business.Legal issues. Tagged as.
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