Self Employed or Limited Company

[phoneguy_23]

Can someone please explain me the pros/cons of self-employed & Limited company individually.

Also what would be the NI contribution & Tax payable in both the options, the objective is to maximise the take home pay within legal boundaries.

An example of 100,000 pa would be good to explain

Thanks & Cheers.

[Nixon Williams]

Self Employed

Be aware that even if this method is what you would like, your clients or agency may not be prepared to engage you on this basis. This is because that if you’re self-employed status is challenged they could become liable for any extra tax and NIC liabilities that may be due.

The Income Tax (Earnings and Pensions) Act 2003 Section 44 effectively prevents individuals from trading as sole trader where an agency is involved, as it obliges the agency to treat the individual as if they were an employee, and so required to deduct PAYE and NIC from any payments due.

Limited Company

Trading through a Limited Company has become increasingly popular, due to flexibility and tax efficiency. Whilst there are other options as detailed above, these rarely prove to be as tax efficient and/or compliant with tax laws.

The actual figures depend upon many factors, it is probably better to speak to an accountant and discuss your needs - usually however the limited company is the most tax efficient.

I hope this helps.

Alan

[ittony]

Self Employed or Limited Company

Aren't you self employed if you work for your own limited company?

[malvolio]

Aren't you self employed if you work for your own limited company?

Not in the strict meaning; you would be a director (presumably) and you could be an employee as well. SE is a distinct status that doesn't require a LtdCo and has a different (and mostly rather gentler) tax treatment.

[ittony]

Not in the strict meaning; you would be a director (presumably) and you could be an employee as well. SE is a distinct status that doesn't require a LtdCo and has a different (and mostly rather gentler) tax treatment.

Are you referring to Sole Tradership?

[THEPUMA]

Are you referring to Sole Tradership?

That is synonymous with self-employment.

If you run a limited company, you are employed by the company, not by your"self".

[ittony]

That is synonymous with self-employment.

If you run a limited company, you are employed by the company, not by your"self".

My understanding is that being a sole trader and working for your own limited company are both distinct subsets of 'self employment'.

[malvolio]

My understanding is that being a sole trader and working for your own limited company are both distinct subsets of 'self employment'.

Yes, but there is a defined tax status called "Self Employed" that impacts NI payments and accounting/reporting rules that are different to you working for your own company. So it depends in which context you use the term.

Just to be safe, I usually describe myself as Company Director.

[ASB]

As Alan from NW said it can be difficult to be self employed (in the Tax view) and obtain agency work. It can also be difficult to obtain direct work.

This is because in the event of a status enquiry the risk falls on somebody other than the self employed person and people are unwilling to take the risk.

As THEPUMA said, if you run a company you are an employee of it. However this is only one of potentially many strands to your affairs.

If for some reason you truly want to be self employed you can still be so. The only difference being that your customer is your company. Obviously it is important that the contracts between you are an individual and your company are drawn up correctly, and reflected in working practices.

I do know some people who have operated like this, but I've never received a satisfactory explanation as to why. It seems to me it only complicates things and increases expense, but if you desperately want to be self employed it will enable you to be so.

[Moscow Mule]

I'll just chuck my oar in here. If you are definitely outside of IR35 "No Longer Limited" offer a limited liability partnership which makes you fully self employed, you will need to give up a percentage of your fees to get that though (much more than an accountant).

Whether or not this falls under MSC legislation is a completely different question.