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The freelance engineer - self employed or register as a company?

Andy Millar

Hi,

My retirement is fast approaching, but like most consultant engineers there's a good chance that I'll be appreciating the chance to do some freelance work in retirement, particularly in the winter months! I wondered what the team thinks about the relative benefits of going self-employed or registering myself as a company?

I won't be employing anyone else, 99% will be office based (mostly my back bedroom). Tools and equipment will be minimal, laptop, and possibly a multimeter if I get a chance to see some actual technology (I can dream). I would imagine I'll only be working for UK companies, I'd suspect any overseas work would come through UK companies i.e. I'd always be contracted to the UK entity. I wouldn't have any outgoings except travelling expenses.

I will almost certainly mainly be working for large (sometimes very large) organisations, an ex-colleague who went the same path did find that being a registered company made the contractual arrangements with some of these easier. 

There is some risk that I could find in one year that I'm only working for a single client, which as I know from my present side of the fence can be a pain to prove as to whether this is actual self-employment. Presumably being a registered company protects against this? (I really ought to know the answer to that one. I would have done back when I was a full time manager.)

Any other pros or cons of either for this type of work? Obviously self employed is much the easier! I help my wife run her self employed business, and my son run his "sole trader" registered company, so I'm pretty good on the mechanics of both approaches. Including chasing my son every year when the letters come to our address from Companies House nagging him about his annual returns...

(P.S. as somebody will probably mention it otherwise, I already have personal liability insurance set up, I got it for the volunteer engineering work I do. I'd just need to check the limits.)

Any thoughts, particularly from those who've "been there, done that", would be greatly appreciated! Not least as I'll bet I'm not the only one here thinking about this, so if there's any advice not relevant to my situation it will probably still help someone else.

Thanks,

Andy

  • +1

    Hi Andy,   Set up a limited company. I have mine in place for the past 18 years!!!   No need to VAT register unless you expect to be over worked with TO over £90k. Being limited comes across better to clients as being self employed leaves clients open to tax issues if a self employed person does not pay their tax!    Do try and get one or two other small clients to keep the IR35 wolf from the door.  I have two main clients plus one or two others around the edges.  Keep in mind that any foreign turn over does not count towards the VAT TO calculation.   The other good thing about being limited is being able to use dividends.  Up to you but suggest you pay yourself £12,570 per year and claim the rest as dividends @ 10.85%.  OH, and get the company to pay a non contributory pension for you. It is not BIK.   Feel free to hit me anytime on my IETvolunteer address- always happy to chat. 

  • 0

    As someone who has sat on the company side, the assessments I've been involved in for the IR35 side have not focused on whether its self-employed or a company. They have generally focused on if the person is responsible for their work, if they can work at their own location, if they can substitute the person working or not (are you buying a person or a service). Some people say using your own equipment is important, but due to corporate security policy, that wasn't possible and the use of corporate IT was accepted in our case. But you may have seen different approaches. I suspect no company does it the same.

    The friends I have the contract generally set up companies. The only exception I've seen is someone contracting within IR35 and they stayed self-employed (but charged eye-watering rates).

  • 0

    I have not done any consultancy for nearly 20 years but when I did I was a limited company as paying yourself via dividends attracted less tax than PAYE and there was more flexibility around expenses.  Most of my consultancy was prior to IR35 but I had to consider it on later contracts and having a limited company does not isolate you from liability. I have lost track of the latest IR35 rulings but know HMRC are still actively pursing it and apparently still making mistakes on interpretation of the rules, so it pays to get professional  advice as many people have incurred large liabilities trying to avoid it.

    Depending on your turnover there is also VAT and now MTD reporting about which I know very little apart from the fact that many of the accounting packages have issues doing the periodic online reporting. Again I would recommend professional advice.

    I have also been a sole trader which has less reporting issues but many companies used to prefer ltd companies as they were at arms length re NI and tax but recent IR35 changes have changed that  and I am out of date on the current status.

    What ever you do good luck and get some professional advice to ensure you dont fall foul of the changing legislation.

    Hopefully someone with current experience can educate us both.

  • 0 in reply to kfh

    Thanks, all really useful - I'll have to look into IR35. (Again, 10 years ago I used to know this stuff inside and out and top to bottom before I escaped from management into consultancy.)

    For me, if my turnover is anywhere near VAT levels then I'll be getting it badly wrong - I've plenty of other things to be doing in retirement! 

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