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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

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    Afternoon Andy,

    I would repeat what others have said and seek professional advice. If there was an "Ideal" solution everyone would be doing that. Everyone's "Goals" and outcomes and HMRC situations are all unique so what suits one may not suit another.

    Although not quite at retirement age yet, and been slowing down a little or being more selective on work I do over the last few years. I have been self employed as a Sole Trader for twenty years. I sat with a professional accountant and tax advisor and went thru benefits and negatives of a Ltd Company Vs sole trader for my consultancy work.

    I ended up a sole trader as there is far less formality and less documentation regards Companies House. But with recent Making Tax Digital has now doubled my time spent updating the required software which also costs me a monthly fee instead of two excel spreadsheets I used to run, one for income from invoices other for expenses. I do a lot of work abroad, so as somebody else mentioned that doesn't count towards the VAT threshold. 

    Of course my business earnings/profit is seen by HMRC as being my own personal income, so yes over the years paid more tax than I maybe should have had if I was a Ltd Company and taking dividends. But in the early days might have struggled as the Ltd Company had no trading history!!

    One thing that worked for me was during and after Covid pandemic, as a sole trader I was entitled to and received full Max grants If I had been a Ltd Company would not have been entitled to those, so in some ways the extra tax I had been paying was returned to me.

    Liability, again professional insurances very important, Ltd Company protects you from any major issues from people seeking payment. But given consultancy I never really saw that as a risk.

    Sole trader status worked for me, I have ten regular clients and thirty plus clients that engage with me on an adhoc business, so again the I35 issue hasn't been an issue for me. But had to sit with some clients before engaging with me to prove tax status.

    I'm more than happy to engage further with you if you drop me a message, but everyone is unique and a professional advisor will help once you know exactly what and how you want to do things and how you see turnover values, where that is earned, number of clients, duration of work. Plus if you are soon to receive pension payments etc how they might impact things.

    Best of luck,

    Regards GTB

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  • 0

    Afternoon Andy,

    I would repeat what others have said and seek professional advice. If there was an "Ideal" solution everyone would be doing that. Everyone's "Goals" and outcomes and HMRC situations are all unique so what suits one may not suit another.

    Although not quite at retirement age yet, and been slowing down a little or being more selective on work I do over the last few years. I have been self employed as a Sole Trader for twenty years. I sat with a professional accountant and tax advisor and went thru benefits and negatives of a Ltd Company Vs sole trader for my consultancy work.

    I ended up a sole trader as there is far less formality and less documentation regards Companies House. But with recent Making Tax Digital has now doubled my time spent updating the required software which also costs me a monthly fee instead of two excel spreadsheets I used to run, one for income from invoices other for expenses. I do a lot of work abroad, so as somebody else mentioned that doesn't count towards the VAT threshold. 

    Of course my business earnings/profit is seen by HMRC as being my own personal income, so yes over the years paid more tax than I maybe should have had if I was a Ltd Company and taking dividends. But in the early days might have struggled as the Ltd Company had no trading history!!

    One thing that worked for me was during and after Covid pandemic, as a sole trader I was entitled to and received full Max grants If I had been a Ltd Company would not have been entitled to those, so in some ways the extra tax I had been paying was returned to me.

    Liability, again professional insurances very important, Ltd Company protects you from any major issues from people seeking payment. But given consultancy I never really saw that as a risk.

    Sole trader status worked for me, I have ten regular clients and thirty plus clients that engage with me on an adhoc business, so again the I35 issue hasn't been an issue for me. But had to sit with some clients before engaging with me to prove tax status.

    I'm more than happy to engage further with you if you drop me a message, but everyone is unique and a professional advisor will help once you know exactly what and how you want to do things and how you see turnover values, where that is earned, number of clients, duration of work. Plus if you are soon to receive pension payments etc how they might impact things.

    Best of luck,

    Regards GTB

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