If you’ve made the decision to embrace self-employment after graduation, you might be surprised to find out that there are a number of ways that you can work and structure your business.
There’s no one-size-fits-all answer to which structure is best, it all depends on your own personal circumstances. Whether you want to be a sole trader, work under an umbrella company or run your business as a limited company it is entirely up to you and what fits your personal WorkStyle. Our guide gives a brief overview of each option so you can make a more informed decision.
Once you choose to work for yourself, you are considered a sole trader in the eyes of HMRC. If you choose to continue working as a sole trader, it means that you are personally responsible for your business. The law sees yourself and your business as the same which means that you are personally liable for any losses or debts that your business makes. On the other hand, this also means that you can keep all of your business’ profits.
Working through an umbrella company (such as with our sister company, Parasol) is considered a great first step into the world of self-employment. It allows you to enjoy the benefits of working for yourself without the hassle and responsibility of paperwork, so you can focus on what you do best; your job.
As an umbrella employee you get the best of both worlds - not only are you able to work for yourself and benefit from all of the perks that contracting offers but you will also receive the same benefits and rights given to permanent employees such as sick pay, holiday pay and maternity/paternity leave. Your umbrella company will deal with all the paperwork and payments for you such as contracts and national insurance contributions. You’ll also get paid by your umbrella company, with your tax already paid to HMRC.
If you’re planning on contracting for a long time and will earn more than £15 an hour, going limited might be better for you. As a new graduate, this hourly figure may seem a way off, but if you have previous experience or a specialist skillset and your work is of high quality, there is no reason why charging £15 per hour is far out of reach.
There is a bit more paperwork and responsibility involved as a limited company director however it is likely to be the most profitable way to run your business. Not only can you pay yourself a combination of salary and dividends to ensure you’re tax efficient, but you also have more flexibility when it comes to managing your expenses and claiming legitimate business expenses.
How can ClearSky Contractor Accounting help?
Whether you choose to go limited or join an umbrella company, when it comes to your contracting career, we’re with you all the way. We and our sister company, Parasol, are well placed to offer you the ideal contracting solution. If you’re unsure of which route is best for you, our best advice team are here to – you guessed it – give you the best advice on your options as a contractor.