What is The Best Option for Writers Working on a Freelance Basis?
If you’re a writer completing assignments on a freelance basis, it can be difficult to know how best to operate. When it comes to handling contracts and money, it’s unlikely this is your area of expertise and it can be extremely daunting.
Fortunately, I have come across a couple of options that can help to maximise the amount of money you make and minimise the effort involved with sorting out your own admin, leaving you free to concentrate on your writing.
Set up a limited company
One of the options you’ve probably heard mentioned is to set yourself up as a limited company. Personally, I always assumed this was restricted to big businesses and corporations, but I have since discovered it is a common practice for contractors to work through a limited company.
The limited company exists completely separate from yourself in the eyes of the law, though the listed owners (often referred to as the shareholders) can be company directors, employees, family members or private investors. It is even possible to establish a private limited company whereby you are the director and sole shareholder.
The primary advantage to creating a limited company is that you can limit the amount of salary you receive each year, allowing you to take advantage of more favourable rates of tax and National Insurance (as long as you are genuinely in business on your own account). You can then withdraw additional funds from the business in the form of a dividend, which does not require you to pay National Insurance.
You may also find agencies and recruiters are far more willing to offer contracts to limited companies ahead of sole traders. The structure makes them feel more secure when handing out assignments and I have seen many times that this is the preferred option.
However, whether or not this is the right route for you to go down depends a great deal on the amount you earn. Companies are liable to pay corporation tax and may be required to make contributions to National Insurance that can make them less profitable.
It is also important to remember limited companies are listed at Companies House. This means some details, including personal information relating to directors and shareholders, will be accessible online to members of the public in exchange for a small fee.
There is a lot of admin and paperwork that must go into the running of a limited company, but you will find limited company services are offered by many organisations to assist you with this burden.
Be careful with IR35
The IR35 legislation was first introduced in 2000 as HM Revenue and Customs (HMRC) attempted to reduce instances where employees were being listed as directors of limited companies in attempt to reduce the amount of tax they paid on their earnings.
If you choose to set up a limited company IR35 is crucial, as HMRC can impose significant fines as well as charges for underpaid tax if you fall foul of this legislation and are deemed to be a ‘disguised employee’.
As a general rule, you will be required to adhere to the legislation if you effectively act as an employee to a client rather than an independent contractor who is genuinely in business on their own account. If for instance, your working hours and how you complete tasks are set by someone else, you may be seen as an employee by HMRC.
However, if you decide when, where and for how long you work and complete assignments for a number of different clients, you are more likely to be deemed outside the legislation and will be free to operate as a limited company. However there are other factors that will be considered in determining whether a person is self-employed or not.
As IR35 is so complex, I would always recommend that you get an IR35 review on your assignment from a reputable accountancy service provider to ensure you are working in the correct way.
If you fall inside the IR35 regulations or simply do not want to operate as a limited company, the option I recommend strongly is to employ the services of an umbrella company.
In this instance, you are effectively an employee of the organisation, therefore your tax and National Insurance deductions are sorted out on your behalf, as is any admin and paperwork, allowing you to concentrate on contracting safe in the knowledge your payments will be sorted for you.
About the Author: This article is brought to you by Edel Flood
You might also like
When your enterprise is in its critical initial phases, pursuing claims against deadbeat vendors and two-timing salespeople may seem to make sense, but pursuing litigation at this stage may not
Accidents at work are all too common. In the UK alone, over one million people suffer from work-related illnesses each year, with over 27 million working days lost and more
At a certain growth stage of your small business, you might want to consider whether you should incorporate your business or not. Read on to learn more… Business incorporation, in