Understanding and Comparing your Working Options

If you are thinking about becoming self-employed, as a contractor, freelancer or self-employed professional and want to understand your working options, you are in the right place.

Our infographic below is a good place to start, allowing you to compare and understand your working options and possible take home pay. If you want to know more, our FREE guide to working options is full of useful insights into running your own business.

Understanding your working options as a contractor, freelancer or self-employed professional

Find out more about Brookson's Umbrella Employment Solution Find out more about Brookson's all-inclusive Sole Trader Service Find out about Brookson's all-inclusive Limited Company Service Brookson Google+ Brookson on LinkedIN Brookson on Twitter Brookson on Facebook Find out more about Brookson's all-inclusive Sole Trader Service Find out more about Brookson's Umbrella Employment Solution Find out about Brookson's all-inclusive Limited Company Service Find out more about what you need to consider Find out how Brookson can help self-employed professionals Find out how Brookson can help freelancers Find out how Brookson can help contractors

Share infographic on:

 

Embed this infographic on your site

Copy and Paste the Code Below

Understanding your working options as a contractor, freelancer or self-employed professional

Limited Company, Sole Trader, Umbrella Company or Agency/PAYE; which option is right for you?

  • Around 1 in 7 workers in the UK are currently self-employed
  • There are over 1.4 million contractors, freelancers and self-employed professionals in the UK.

Take-home pay

£30,000 income

Limited - £26,667

Sole trader - £26,387

Umbrella - £23,704

Agency/PAYE - £20,536

 

£50,000 income

Limited - £43,275

Sole trader - £40,828

Umbrella - £35,655

Agency/PAYE - £32,138

 

£70,000 income

Limited - £59,883

Sole trader - £52,869

Umbrella - £46,285

Agency/PAYE - £42,127

Things to Consider

  • Length of Time: How long do you plan to work as a self-employed professional?
  • Administration: How much time do you have to invest into running your business?
  • Turnover and Profit: How much do you expect your business to make?
  • Client Expectations: Do your customers prefer to work with a certain type of business? 

Limited Company

Setting up a Limited Company involves incorporating your company, setting up a business bank account, arranging insurance cover, and becoming a director of your company.

Pros

  • Credibility - Some clients will view a Limited Company in a more positive light. Some larger companies may even refuse to transact with sole traders.
  • Higher take-home pay - Because of tax efficiency you will take home more pay than being PAYE, Umbrella or a Sole Trader.
  • Lower personal financial risk - Because of its structure and separation between you and the company, you are protected* from the threat of personal financial losses if things go wrong.
  • Tax planning - Various tax planning opportunities exist which can be tailored to your circumstances where applicable, to deliver significant tax savings.

Cons

  • Administration: There are greater statutory obligations, such as submission of Annual Accounts, Corporation Tax Returns and VAT Returns.
  • Costs: Because of the range of statutory obligations, there are usually higher accountancy costs and, if you don't get things right, higher financial penalties.
  • Directorship: Directors of limited companies hold obligations under the Companies Act 2006.
  • IR35: You must show that you are genuinely self-employed and not just a disguised employee. This will typically require an IR35-friendly contract with working practices to match.

Umbrella company

You can choose to become an employee of an Umbrella Company, allowing you to choose the assignments that you want to work on, whilst being paid through an Umbrella Company that processes your payroll.

Pros

  • Ease of setup & use: Quick & easy set up and running in minutes. Simply submit your timesheets and expenses. Holiday pay and insurance is included.
  • Low risk: All tax and NI is automatically deducted so no need to worry about Tax Returns or budgetary spend.
  • Length of assignment: Suitable for any period of working; short or long term contracts. A good choice if you are working intermittently.
  • Expenses: The ability to claim back certain expenses such as travel, subsistence, tools and equipment etc.

Cons

  • Lower earning potential: You may be able to claim tax relief on certain expenses but it is not as tax efficient as a Limited Company.
  • Control: No control over the processing of payments etc and there can be a delay in payment as it has to go through a third party before you get it.
  • Identity: You are unable to create a brand identity to build your reputation in the marketplace.

Sole Trader

Setting up as a Sole Trader involves registering yourself (your business) with HMRC and arranging insurance cover.

Pros

  •  Employment status: The employment status risk lies with the client, not you.
  • Less Administration: Fewer statutory obligations mean less paperwork – you just need to submit your personal self assessment every year.
  • Lower accountancy costs: Because accounting is simpler your accountancy costs will be lower.
  • Control: You have complete control over your assets and business decisions. It's also relatively easy to wind up or change structure if you grow

Cons

  • Less take-home pay: Compared to a Limited Company you will take home less net pay from an equivalent turnover. You are personally liable to pay tax on all income earned.
  • Liability: You may be personally liable if things go wrong. Your own finances and possessions may be at risk.
  • Raising funds: It can be more difficult to raise funding as it will appear less established and less able to repay.
  • Status: Some clients look more favourably at Limited Company companies and will not see Sole Traders in the same light.

Agency/PAYE

Working with a recruitment agency means that you will have a contract with them. Your salary will be processed by their own payroll as PAYE.

Pros

  • Simpler payroll model: There is no administration; you just need to complete a timesheet.
  • Ease of use: All tax and NI is automatically deducted so no need to worry about Tax Returns or budgetary spend.

Cons

  • Higher tax: Expenses cannot be claimed on tax relief, meaning higher tax rates are paid.
  • Lower earning potential: The hourly rate offered to agency workers is often lower, but should not impact net pay.
  • Identity: You are unable to create a brand identity to build your reputation in the marketplace.
  • No expenses: You are unable to claim tax relief on expenses.

^Assumptions

The calculations are based on 40 hours per week, over 52 weeks, claiming £2,600 expenses and 10,400 business miles per annum, HMRC Flat Rate VAT Scheme at 13.5%, directors fee of £149 per week. Limited, Sole Trader and Umbrella figures include the Brookson fee or margin. Agency/PAYE includes a rate reduction of 13.8% to accommodate employers NI.

*Providing you meet your statutory responsibilities as a director.

Sources

Brookson Choices: A simple, no-nonsense guide to self-employment.

Arrange a call back to discuss your working options