CHAPTER 5
Becoming a
company
W
hen you become self-employed you’ll need to choose
a legal status. The two most popular options are
limited company and sole trader. Both have their own
benefits and drawbacks, so let’s look at what they involve.
Sole trader
It’s easy to become a sole trader. Simply notify HM Revenue
and Customs that you are self-employed. Make sure you notify
HMRC within three months of becoming self-employed or
you risk a fine. If your income exceeds £70,000 (at the current
threshold) then you’ll also need to register for VAT. As a sole
trader you’ll need to complete an annual tax return. Many sole
traders complete their own tax assessments online, eliminating
the need for an accountant.
As a sole trader you may find it difficult to deal with larger com-
panies, who may insist on dealing with limited companies. Also,
as a sole trader you are inextricably linked to your business – in
fact, your business and you are the same legal entity. So if your
business fails and owes money (e.g. rent or expenditure on sup-
plies), you are liable for all of your business debts.
Limited company
Limited companies are legal entities considered by law to be
separate from their owners. So by creating a limited company
54 brilliant freelancer
you separate yourself from your business. As a limited company
you will have to prepare an annual set of accounts, including a
balance sheet and profit and loss account. These must be sub-
mitted to Companies House and filed for public record. Unless
you have some accountancy expertise you’ll have to pay an
accountant £500–£1500 to prepare these accounts from your
books.
Being a limited company involves more administration and
tends to be more expensive (mainly because you need to pay an
accountant) than being a sole trader. However, the additional
burden and costs are often outweighed by the amount you can
save in tax. If your freelance earnings are greater than £20,000,
a limited company is typically the most tax-efficient way to do
business.
Choosing a business name
However you choose to trade, you’ll need to pick a trading
(or company) name. Your name must be different to existing
company names so Google your choices to make sure you’re
not stepping on any corporate toes.
brilliant
tip
For you, as a freelancer, the main goal is to be understood and
recognised. So choose a business name that helps people ‘get’ what
you do, or just use your own name.
Check the availability of web domains when youre thinking about
company names. Because of the ubiquity of business websites,
few obvious domain names are available unless you opt for an
obscure top-level domain like .tel, .me or .info. Consider what your
Becoming a company 55
business name says about you. Names
carry personality and tell potential
clients lots about you, so make sure
your name is saying the right things
about you. Dont choose a wacky
name if youre in a serious business
and trying to appeal to corporations.
Creating your company
The method for creating your business identity depends on your
preferred legal status.
Trading as . . .
If you become a sole trader (self-employed) then you can simply
notify HMRC that you are trading as a business name. So if
your name is Wilson Bignose but you want to trade as RedRum
Designs then your official name will be Wilson Bignose trading as
RedRum Designs.
Limited company creation
To create your limited company you’ll need the help of a
company formation agent. Many businesses offer company for-
mation services, so while it is technically something you can do
yourself, it’s sensible to pay £20–£100 and have it done prop-
erly. Company formation is quick and easy so you can have
your company created in a day.
Business bank accounts
Your business must have its own bank account. If you choose
to go limited then you must create a new bank account for your
limited company – even if you have an existing business account
for your sole trader business.
consider what your
business name says
about you

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