For many people, the decision to become self-employed is one of the best they’ve ever made. However, stepping away from a full-time job is a big decision, and it can seem overwhelming sometimes. If you’re considering becoming your own boss, you might find that you don’t know where to start.
Besides the basic tasks you’ll need to complete, like registering as self-employed with HMRC, most of the big decisions that have to be made will depend on how you want to work. There are two main options: you can form your own limited company, or you can work through an umbrella company.
Both have their own pros and cons, and moving into self-employment is different based on which of these you choose. As such, here is a brief guide to both, so you can make an informed decision and understand what to expect from the beginning of your self-employed journey.
Forming a limited company
If you are looking forward to self-employment because of the level of control you will have over your work, or simply because you want to make as much money as possible, then setting up a limited company might well be the best option for you. It involves more work, but gives you lots of freedom and a larger portion of your earnings.
This option is the most tax-efficient, meaning less of your hard-earned money will end up going to HMRC and more will end up in your pockets. You’ll also have control over every part of your working life, including things like marketing your services. Whether you want to build up a business or just be your own boss, this gives you that power.
Of course, there are downsides. The main one is the level of administration involved with setting up and running your company. You can’t just get on with your work, as you’ll have to make sure everything is regulatory and tax-compliant, keeping close track of your finances and making sure you’re making a profit.
If this sounds like the right option for you, the first thing you’ll need to do is set up your business. One step that is more important than you might think is choosing a name. As well as being a good representation of your business, it needs to abide by Companies House rules. You might also want to make sure you can register its domain name online for your company website.
Then you will need to incorporate your company, which is simpler than it sounds. Essentially, it involves filling out forms from Companies House and submitting them to the organisation once you’re done. You can do this yourself, or use the services of a company like Brookson to take care of it.
Then you’re ready for the final steps of this set-up process, like opening a business bank account and getting all the right insurance policies in place. Again, Brookson has specialist advisors on hand who can guide you through this process.
Working through an umbrella company
The other main option is to complete your work via an umbrella company. This is a very admin-light option for people who want to be more flexible – and make more money for their services – but aren’t interested in the administrative work that comes with setting up and running a limited company.
You will essentially work as if you were an employee of whatever umbrella company you sign up with, only they won’t tell you what work to do. When you take on a contract with a client, you simply fill out a timesheet for your umbrella company, and it will take care of invoicing and payroll, deducting your tax for you and paying you what’s left.
Of course, this means it’s less tax-efficient than setting up a limited company, and you’ll also have to pay a fee for this service. Usually, your rate will be high enough that you’ll still make more than you did in permanent employment, but you might have to live with a lower income for a while when you’re first getting started.
Setting this up is easy. All you need to do is find the right umbrella company and sign a contract with them. However, working out which organisation is best for you is an important task, and shouldn’t be rushed. While all of them will tax you using the same PAYE calculations, there are other things to bear in mind.
Firstly, each one will take a certain amount of your earnings as a fee for their services. Do some research and see what the best options are to allow yourself to take home as much of your earnings as possible. However, bear in mind that some will offer other benefits, which might be worth more to you than take-home pay.
They’ll also all have slightly different payment structures, which is important to take note of. Some will pay you as soon as your clients pay them, while others will stockpile all your earnings and pay you on a set date, such as the end of the month. It’s up to you to decide which is better for you, and find the provider that matches your needs.
To find out more about the working options available to you and how you can start your career as a contractor call Brookson One and request a free no obligation consultation.