Permanent employee / contract work?

[underwurlde]

Hello,

Perhaps someone knows the answer to this hopefully:

I am a permanent employee in the UK & have been all of my career.
Now I want to spread my wings and am starting to do so.
To this end I have done some work for another company in my own time at home.
They now want me to bill them for my work, i.e. rasie an invoice.

But now I am stuck as I don't how to do this entirely!
Do I need to set up a company in order to be able to invoice another company?
How do I pay tax and not get caught out by this?
Or am I right in thinking I just raise an invoice with the work I've done, itemized & added up, with my name on it stating how to pay me. Then at the end of the year I just fill in a tax return form stating what extra I've earnt in my spare time?

Thanks all,

Andu

[John]

Hi,

It really depends how far you want to take it. If this is something you are going to be doing regularly, you can certainly look into setting your own company up.

However, the way you mentioned is also fine. You just invoice the client with instructions on how they can pay you, you then declare this at the end of the tax year (you will need to request a form from HMRC or download from their website hosting. I think they also allow you to file online).

If you do it with the above method, make sure you don't spend all the money and leave yourself short for when you need to pay tax.

[underwurlde]

Great reply, thanks John!

I think I will just invoice them in my name, see how things progress with this and if things really take off, set up a company.

I'm now wondering what the pro's & cons are in setting a company up, or if indeed once my contractural income reaches a certain level then I'll have to set a company up etc.

Thanks again,

Andy

[John]

I don't believe there are any restrictions but it will get to the stage where you can save on tax by setting a company up. For example, at the moment you will need to pay income tax. If you set a company up, there are ways you can pay less tax on your overall income. I'm not 100% sure how it works (that's what accountants are for). Of course, there is also then company "expenses".

You should speak to an accountant about it. An accountant will be able to advise you on the exact savings and also the process.

[DPS Computing]

I would *highly* suggest (and this is speaking from experience - I have two distinct companies / self employment myself) that if your working alone that you register and set up as a Sole Trader - this is much easier, there is much less paperwork and overhead and a lot less headaches.

As a sole trader you can operate any self employment work (i.e. as many different areas as you want) at the same time, and, as with all businesses / self employment, you need to keep a recording of what your earning but as a sole trader you can submit this as a lump sum - you don't need to seperate different forms onto different sheets.

Bear in mind, the second you invoice somebody, your company / self employment has effectively started and you need to notify HMRC within 3 months (your really supposed to do it before you start) otherwise you face a hefty fine - and if your dealing with other companies, your more likely than not to be caught out extremely quickly due to the fact they have records all over the place, including with HMRC and will have records of their transactions to you.

You can offset your tax bill with expenses of the self employment whether you are a sole trader or start your own company. But as a sole trader, you get a lot less hassle, don't have to pay things such as incorporation fees for your companies and you have a lot less obligations. Bear in mind also if you choose a company over sole trader you will be required to sort out a chairperson, director and secretary as a minimum for the company. You will also have to decide how the shares are divided up and other things like that if your a Limited company.

My recommendation would be sole trader - but its up to you .

[jc8654]

I would generally agree with David on that. It's nothing to be scared of though. I'm registered as self employed as I'm in a business partnership even though I do occasional work for other organisations.

Unless things really take off, I would go as a sole trader first and then become a company a few months/years down the line - it's important to see if it works as becoming a company involves a fair bit of paperwork on a yearly basis.

[DPS Computing]

Plus legally, if you cock up, if your a company its easier to hang you out to dry .

[jc8654]

Yes, but with a company, there is less liability on you as it's on the company and not the individuals!

[DPS Computing]

Yes, but with a company, there is less liability on you as it's on the company and not the individuals!

Yes, but in web hosting / web design there are very little costs that you would be liable to pay in case of failure as opposed to a company selling cars or a shop etc.

More liability maybe, but less to be liable for in the first place! - so I don't think this point should be given too much consideration with regards to the business that we are talking about here!

[Macca]

Hi Chaps, I totally agree with DPS on this one.

I started my own Limited Company when I went into web design and the extra expense and hassle it caused me was unbelievable. I soon sold on the company (easier than shutting it down completely), paid all accountancy expenses etc off and then registered as self-employed.

Also as DPS mentioned the extra liability placed on the self-employed really isn't an issue here unless you intend to buy/sell hardware as well. Completing tax returns is straightforward enough too as it really is just balancing income against outgoings.

I think you do need to register with HMRC immediately though and there are a few things that your invoice will legally need to show. If your business name does not include your surname you must have your full name on the invoice (i.e. John Smith t/a JS Web Design rather than just JS Web Design).

Here are a couple of helpful links.
Earn an Extra Income When Self-Employed - Extra Income Advice (UK)
Requirements for an invoice | Business Link

Good Luck.

[DPS Computing]

There you go - a case study to confirm what i was staying. Thanks for that Macca.

I have an insight into both self employment / sole trading (as I am in self employment / sole trading) as well as limited companies as I'm on the board of one and see all the work, paperwork, extra costs etc first hand so I think I'm quite well placed to advise on this topic.

Once again, thanks Macca, its always good if you can see an example of what your trying to point out .

[jc8654]

The best place to go for 100% accurate advice is business link. If you google it, it'll bring up the info - their website hosting is an excellent resource for when you're starting out into what you need to do legally and the do's and don't. They also have free info packs which they can help you.

[DPS Computing]

The best place to go for 100% accurate advice is business link. If you google it, it'll bring up the info - their website hosting is an excellent resource for when you're starting out into what you need to do legally and the do's and don't. They also have free info packs which they can help you.

Don't forget HMRC as well - basically if you don't do what they do, they will kill you (at least financially and criminally) irregardless of what any other web site hosting / resource says.

Don't forget, register with them immidiately and if you dont at least register within 3 months otherwise its a guarenteed £100 fine. Plus don't forget to keep records of all your transactions, both in and out .

[davidthomas3]

Do I need to set up a company in order to be able to invoice another company?

[BristolDave]

Check with an accountant before doing anything, it is easy to fall foul of the tax man by accedent and they do not stop once they think you are trying to cheat them.

Setting up a sepperate account at the bank for your business to keep everything seperate from your regular income is somthing else to consider.

Good luck with your new venture

[madwayne]

Do I need to set up a company in order to be able to invoice another company?

The answer is no.

We sell online goods and services and even do the occassional importing/exporting as well as a regular job.

As a sole trader you can do pretty much everything you can do as a company. Just its done slightly differently with respect to reporting your dealings and having dircetors and company secatary as mentioned above, extra paperwork.

All you need to do to raise an invoice, is have your details on it, what the charges are for and how they can pay you for the services you have provided. And the details of who you are billing, search on line for examples of invoices

The best thing is to speak to a accountant, as they can advise you on what to claim for as tax deductable expenses as part of your self employment as a sole trader.

For example, phone calls, equipment, travel costs, business lunch, are just a few of the legitimate expenses. keep all your receipts though and keep them well ordered makes it easier for the accountant to save you money on your tax liability.

[ruzzel01]

I hope i can be qualified.

[sihost]

Hi,

If you set up a limited company through your accountant it gets expensive. People think its a difficult and long process.

However, it is dead simple and has many benefits over being self employed.

To answer your question first, no you don't need to actually set up a company to be able to invoice another company. You can invoice as a sole trader, 'trading as' whatever you want to call yourself. AS others have said though, notify the tax office and you begin paying class 2 national insurance.

For the long term go limited.

Its easy to do yourself at Company Formation - Online Company Formation - Limited Formation - Company Registration - we paid £25

There is slightly more paperwork and it works differently to being self employed but below are the key points:

- Set up a business bank account, pay all your earnings into that.

- You DON"T pay tax or national insurance yourself, you pay yourself a wage which is under your tax free allowance - speak to an accountant about this

- The company then pays 21% corporation tax on the remaining profits, you pay the rest to yourself in dividends.

- A self employed person pays 23% tax and 8% national insurance so even though a limited company costs more accountancy fees, in the long run you are better off and a good accountant will do all the extra paperwork. Try to use a tax advisor/accountant, we do and they save us enough tax to pay their fees.

- A limited company protects you and your house, car etc. If your company fails, you don't have to give your personal possessions away to debtors/ballifs.

Feel free to PM me if you have any other questions, I run a design, web print and hosting company and would be glad to help. Also take a look at that companies made simple website, it's a great resource. Also, business link website has some useful information.

Good luck and good on you for having the guts to start up your own company, you won't look back, I'm sure the others on here will tell you the same!

[Veer12]

I think I will just invoice them in my name, see how things progress with this and if things really take off, set up a company.

I'm now wondering what the pro's & cons are in setting a company up, or if indeed once my contractural income reaches a certain level then I'll have to set a company up etc.