The following information is provided as a guide to support committed/lifestyle contractors who undertake professional freelance assignments.
- Consider setting up a Limited company – this is the most prudent and tax efficient way for professional freelance contractors to maximise their income, which can be gained via a mixture of salary & dividends.
- If possible, consider splitting the ownership of a limited company with a non-earning spouse as this can reduce the level of tax you will pay, perhaps keeping you out of the 40% higher rate tax bracket altogether.
- If the limited company turnover will be less than £150,000 per year, it may be prudent to register for the flat rate VAT scheme. In some circumstances this could add a reasonable financial benefit to your net invoice value per year.
Make sure you claim for all relevant business expenditure as you will receive relief against Corporation Tax.
Expense items can potentially include, business travel, professional subscriptions, training, insurance, accountancy fees, protective clothing, mobile telephone costs, pensions, IT equipment, internet and software, costs of advertising your services, printing, copying, postage, stationery and home office use.
Note – for an expense to be justified it must be wholly, necessarily and exclusively required by the business, for business purposes.
- Keep copies of invoices and receipts to back up your claims – HMRC recommend you should keep all business records for a period of six years.
Invest in a pension - this is one of the most tax-efficient decisions you can make as it will help to reduce both your company tax (Corporation Tax) and personal tax bill.
Note – All decisions relating to pensions or investments must be made in conjunction with advice received from a qualified Independent Financial Adviser.
- It is normally more tax efficient to purchase a car outside of your limited company and only claim business-related mileage at the rate(s) specified by HMRC.
The marginal rate of personal tax on income earned above £100,000 is significant, due to the fact that you gradually lose your personal allowance between £100,000 and £125,000.
If you don’t need all of the money you earn through your limited company to live on, simply leave it in the business bank account. Cash retained can be used to provide for periods between assignments and will also attract less tax if/when you decide to close your company down.
Ensure you adopt good housekeeping policies and pay all your statutory liabilities on time – this includes Corporation Tax, VAT and any additional personal tax identified in your annual tax return.
Failure to meet your statutory deadlines will incur the attention of HMRC.
Appoint an Accountancy business who specialise in supporting freelance contractors.
Note - In addition to all conventional accountancy/tax services you will require help/assistance to navigate important legislation (i.e. IR35) that currently challenges freelance contractors who own limited companies.
If you would like more information about the options and benefits that may be available to you, please contact a Champion Advisor on 0161 703 2549.
Champion have a proud 50 year heritage supporting freelance contractors – we will be pleased to provide you with an in depth consultation and will furnish you with sufficient information to enable you to determine your next steps.