The UK economy continues to operate under challenging economic conditions. Meanwhile, Making Tax Digital for VAT now takes effect, and business owners are urged to consider the changes to Entrepreneurs’ Relief conditions, and to take advantage of the increased capital allowances Annual Investment Allowance.
Here, we provide an overview of these latest developments.
Many freelancers start out as sole traders as it is often the simplest way to structure a new business. You have total control and can make quick decisions without having to consult directors or shareholders. There is a relatively low level of administration involved as you are only obligated to submit a yearly tax return and possibly a VAT return. You do not need to register with Companies House, unlike setting up as a Limited Company, meaning you can maintain your privacy. Your accounts do not have to be audited or made public and you won’t need to submit an IR35. You are also able to withdraw money from your bank account freely.
As you are the sole owner you are also responsible for any losses. Unlike a limited company there is no separation between the business and owner. This means that if the business fails and there is debt owed then the money can be recovered from your personal assets, regardless of whether they are connected to the business. Sole traders can also be viewed as higher risk in comparison to limited companies making it more difficult to secure loans from banks and lenders and you cannot sell shares for investment. Running your business through a limited company can also be more tax efficient, especially if your profit goes over a certain threshold.
To get started you will need to register with HMRC for self-assessment and choose a business name. You can trade under your own name or another name but you must not:
There is also a list of “sensitive” words which imply a specific connection or qualification which you should try to avoid unless you have permission to use them. Read more here.
