ADVICE ON SETTING UP AS A CONSULTANT
In today’s economy, more and more people are leaving the employment “rat race” and choosing to set up their own business. Sometimes it’s a lifestyle choice where more flexibility rewards you with valuable personal time, or sometimes it’s a chance to make a go for it yourself and earn more money. Whatever the reason, it’s worth seeking consultancy advice and getting things right from the outset.
WHAT’S RIGHT FOR ME? LIMITED COMPANY VS SOLE TRADER/PARTNERSHIP
One of the early decisions to take is the legal structure of the business, usually either a Limited Company or a Sole Trader, or Partnership if multiple Sole Traders. Which is right for me? I’m afraid there is no “one-size-fits-all” answer, it depends on your circumstances, tax position and attitude to risk amongst other things.
As a basic guide, smaller businesses with revenues under £50,000 often opt for a Sole Trader whilst larger businesses usually go for a Limited Company. A Limited Company offers more protection through Limited Liability status should anything go wrong, and offers some significant tax advantages.
If you’re unsure which option will suit you best, Piper Hulse will help you by calculating the tax positions for both options so you can make an informed decision.
IR35 is tax legislation designed to tackle tax avoidance by contractors supplying their services outside of employment (e.g. via a Limited Company) but who could be considered an employee by HMRC. If you are a genuine contractor, freelancer, consultant or interim, you should have nothing to fear from IR35 tax as long as you understand how the legislation works and ensure it doesn’t apply to you.
There are a number of tests of employment;
- Control – what control do you have over the work you do? This includes the what, how, when and where, for example.
- Substitution – do you have to do the work yourself or can you send a substitute?
- Obligation – is the customer obliged to offer the work and are you obliged to accept it?
- Risk – are you taking financial risk in operating your business?
- Tools – do you use your own tools?
We will help you by conducting an IR35 tax review and advising you of your options.
What expenses can I claim for? This is usually one of the first questions our clients have and it’s one of the areas where specialist knowledge makes the difference. The basic HMRC principle is “wholly and exclusively” for the purpose of the business but, as with many things, there are reams and reams of rules and the devil is in the detail.
Bearing in mind each has specific rules on what is allowable, typical allowable expenses for consultants include;
- Travel and subsistence
- IT and phone
- Training and subscriptions to professional bodies (approved bodies only)
- Working from home
- Uniforms and protective clothing
We will help you review your business expenses so you can rest assured that you are claiming what you’re both allowed and entitled to.
Don’t switch off at this point: bookkeeping isn’t something overly complex, it’s simply a record of the business income and expenses! There’s no one-size-fits-all answer here, it depends on the complexity of your business (e.g. number of customers, suppliers, services), your IT skills and your level of interest in admin tasks. Some options for you to consider are:
- Accounts software such as Sage, Xero, FreeAgent. These are much easier to use than the old-fashioned software if you’re comfortable with IT systems. It offers enhances services such as reports, VAT returns and automated links to bank feeds. These days most are online and come with a monthly fee ranging from £10-£30 per month.
- Excel spreadsheet – a simple listing of sales invoices and purchase receipts with the ability to perform calculations to track business performance and prepare VAT returns. For many consultants, this is sufficient.
- Paper records – a manual listing of sales and purchases. This is the old-fashioned ledger book type approach, and really only suits those who are not comfortable operating a spreadsheet or ledger system.
Over the years Piper Hulse has dealt with all of the above. We’ll help you assess your needs and help you choose the right system for both you and your business.
It’s worth insuring your key business risks and for consultants the most important policy is likely to be Professional Indemnity (PI) insurance. PI insurance covers for any claims against you for providing an inadequate service or advice.
Many regulatory bodies and clients will insist on PI insurance for all consultants and it will form a part of their compliance checks and legal contracts. It can cost from a few hundred pounds to a thousand pounds a year depending on the level of cover required and the risks associated with your profession.
We recommend you also consider other insurance at the same time such as Public Liability, Employers Liability and IT/Business assets insurance: it’s often a cheaper add on to a PI policy than doing it all separately.
WOULD YOU LIKE FURTHER ADVICE ON SETTING UP AS A CONSULTANT?
Our many years of accountancy and business advisory experience tell us the early days as a consultant can be daunting, but with the right pointers when setting up as a consultant, a lot of the sting can be taken out of the process. If you’d value our honest, professional advice, why not give us a call on 01785 850 060, contact us online here or pop in to our Eccleshall office to discuss your options: the coffee is on us!