tax advice please

mikeo, post: 5001 a écrit : hi there

i have just started working for a design company, full time from home earning around £250 per week. I would like to know if it is better for me to set myself up as a limited company, soletrader or self employed and how that would effect how i pay for my tax and national insurance

Thank you for any help you can spare!

Hi,
Sole Trader and Limited Company is the same thing by the way

So that eliminated one of the options quite easily.

Self employed:
You pay Class 2 and class 4 NICs

Class 2:in the 2007-8 tax year the weekly contribution is £2.20 which equates to £114.40 a year.

Class 4:If your profits and gains are over a cretain amount (at £250pw) then they will be. You pay class 4 contributions as well as class 2. These are earnings related and paid at a higher rate on earnings between the lower and upper earnings limits and at 1% thereafter

so you earn £250 pw = £13000pa you are well within the upper limit so you would pay 8%NIC on 5225 to 1300 =£7775x8%
= £622

So class 2=£114.40
Class 4=£622
Total NIC=£736.40

Then you pay income tax on top of that
Your first £5225 is tax free
The next 2230 is taxed at 10%
above that and up to £34600 is taxed at 22%

so you would pay
0-5225 £0
£5226 - £7455 £223
£7456-£13000 £1219.9
Total £1442.9

Bear in mind that you can reduce your taxable income by claiming your business expenses and taking this off your profit figure. (eg. use of home as offie, stationary expenses, travel to clients, mobile phone bill)

Limited company:

In short you and the company are separate entities
You are employed by the company, you would also be a shareholder in the company and be entitled to dividends.

There are many tax saving tips which can be employed using the Ltd method but a bit to deep to go into here!

Another thing to consider is that a lot of companies prefer to deal with Ltd companies because it offers them that extra layer of protection. If the design agency you're working for now is fine either way then maybe this isn't an issue for you though.

Have a look at SJD Accountancy - Accountants for Contractors, Freelancers, Consultants and Small Businesses. They specialise in working with freelancers and contractors and there is loads of advice on their site,

On another note, I am a sole trader (not a Limited Company) and have been for 5.5 years and it has never been a problem for me. Managing the finances is an awful lot simpler as a sole trader!

mikeo, post: 5001 a écrit : i have just started working for a design company, full time from home earning around £250 per week.

Unless you are an employee of this company, then you are already a sole trader/freelancer/contractor and need to register as self-employed with HM Revenue and Customs within 3 months of first trading. 🙂