As a freelance courier, you will need to get yourself registered as self-employed.
Most self-employed freelance couriers are registered as sole traders, but it is also possible to set yourself up as a limited company. There are advantages and disadvantages to both, as follows:
If you’re self-employed as a sole trader, you run your own business as an individual.
You can keep all your business’s profits after you’ve paid tax on them. You’re personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.
To set up as a sole trader, you need to register for Self Assessment and file a tax return every year.
You’ll need to:
- keep records of your business’s sales and expenses
- send a Self Assessment tax return every year
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance – use HMRC’s calculator to help you budget for this.
You’ll need to apply for a National Insurance number if you’re moving to the UK to set up a business.
Naming Your Business:
You can trade under your own name, or you can choose another name for your business. You don’t need to register your name.
You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.
However, you cannot include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’, be offensive, or set up with the same name as an existing trade mark.
Advantages of Registering as Self-Employed as a Sole Trader:
- As a self-employed sole trader, you have full control of your business. As there are no other directors, or shareholders, you don’t need to consult with others before implementing a decision. This can streamline and speed up the process of implementing your ideas greatly. Additionally, your personal details will remain private, whereas a limited company’s business accounts and other details are all on public record.
- Improved Flexibility – Similarly to the previous point, because there is just yourself to consider, you are able to change things and change them quickly, if necessary. So if you do happen to make a rash decision, which doesn’t turn out how you had hoped, its quick and easy to revert to an old system, or change things again. It also means that you adapt to changes in the market quickly and easily. Furthermore, it is much easier to go from being a sole trader to being a limited company, rather than the other way around, which would require a much more formal approach.
- Customer Service – As your business is just ‘you’, it will be likely that you will have more direct contact with your customers and therefore will be able to respond to their needs in a much more tailored and bespoke way. Additionally, you will be able to do so much quicker and directly.
- Quick and Simple – While forming a limited company is far easier that it used to be, setting up as a sole trader remains the quickest and simplest way to get your business up and running. There is no need to register a company with Companies House, which will greatly reduce start-up administration. You still, however, need to inform HMRC that you’re self-employed, operating your business as a sole trader.
- Costs – When making the choice to set up your business as a limited company (or some other entity), or as a sole trader, you can employ the help of professional services such as a solicitor, or accountant to help and guide you along the way. However, as a sole trader, setting up is much simpler, which means that any associated professional costs will be lower, or you can do it yourself and save these costs altogether.
- Accounting and Record Keeping – While you will still need to keep accurate records for your self-assessment tax return and you VAT liabilities (if you’re VAT registered), you will not be required to produce a report of you annual accounts or prepare your corporate tax return.
- Less Administration – As a sole trader, there will be fewer statutory obligations required of you, such as having to file a confirmation statement and you are likely to have less contact with regulatory bodies, which will greatly reduce your paperwork requirements.
- Profits – Also, as a sole trader, all the profits that your business makes are yours to keep. There is no need to distribute profits to other shareholders and as a sole trader, it is unlikely that you will have any employees to pay. (Staff costs are often a businesses greatest financial liability). Additionally, you will retain personal ownership of any assets purchased for the business.
Disadvantages of Registering as Self-Employed as a Sole Trader:
While there are clearly many advantages to being set up as a sole trader and being a freelance courier definitely lends itself to the sole trader format, there are also some disadvantages, which you need to be aware of:
- Personal Liability – As your business is ‘you’, all profits are yours, as we mentioned above. However, this is a double-edged sword because it also means that all the businesses liabilities are yours also, which in turn means any debts accrued by the business are your debts. Sole traders are not treated as a separate legal entity, as with a limited company, so if your creditors call-in their loans and you can not repay them from business revenue you could end up losing your house, or even having to declare bankruptcy.
- Potentially, your client base could be reduced as some customers will not deal directly with sole traders. As a freelance courier, we see this a lot and the generally accepted model is that you will provide your services to a courier company, who then provide a service to their clients using you as a resource.
- Tax – As a sole trader, you will be taxed on all of your profits each year and are therefore likely to be taxed at a higher rate than your limited company equivalent.
- Access to Finance – In a similar way to the fact that some customers will prefer to work with company’s, rather than sole traders, banks and financial institutions also prefer to lend money to companies, rather than sole traders and generally at a more advantageous rate of interest. This is because from their point of view there is more transparency with a limited company, whose accounts are made public and there is also additional security in that a company can offer shares in the business as security against a loan.
- ‘You’ are the Business – This can have implications on your work/life balance because when work comes in you often have to make a decision on whether to take the money, or spend time with your family. As a sole trader, you can have employees, but often it is the case that when you stop, the business stops. Also, if you do work alone, you make all the decisions and stand, or fall by them, whereas in a limited company, ideas can be bounced around and there is shared ownership and support of those decisions, once made.
You can run your business as a private limited company. This means the company:
- is legally separate from the people who run it.
- has separate finances from your personal ones.
- can keep any profits it makes after paying tax.
Setting up as a limited company is often referred to a incorporation.
Advantages of Registering as Self-Employed as a Limited Company:
- These days it is quick and easy to do online. See here. Moreover, the cost of incorporation can also be written off as a legitimate expense against corporation tax.
- Legal Segregation – Unlike sole traders, a limited company is treated as a separate legal entity in the eyes of the law, which means that debts incurred by the business belong to the business only and your personal assets will still be protected. (NB. Provided that such debts are not incurred by the fraudulent activity of a director).
- Credibility – Customers and clients will often work with a company in preference to a sole trader, which means, as a freelance courier, you can cut out the middleman by becoming the courier company that subcontracts to other (sole trader) drivers. Also, as a limited company, it is often easier to access finance for expansion and often at a more preferable rate of interest.
- Tax Benefits – Limited companies will pay corporation tax on their profits, which is paid at a lower rate, instead of income tax. Also, because it is a tax on the company’s profits it provides shareholders with in incentive to re-invest profits back into the business, as legitimate expenditure, to further build and grow and develop, rather than paying tax on those same profits. Additionally, as well as paying wages to employees, limited companies can pay dividends to shareholders. This means that shareholders can opt to take a combination if dividends and salary in the most tax efficient format for their individual circumstances.
- Future-Proofing – As a limited company, it is likely that you will have employees and there may well be other shareholders. All these people, in some way, are invested in the continued success of the business, which means that when you are not actually working yourself, the business will still continue without you and even continue after you die. If you decide that you no longer want the business, it is possible to sell it as a going concern, often at a great profit, which could then fund your future lifestyle, or be available for you to re-invest into another business.
Disadvantages of Registering as Self-Employed as a Limited Company:
- You must register with Companies House. This may also mean that you cannot used the name that you had hoped for because it is already in use.
- Set-up costs are likely to be higher.
- Greater Administration – Limited companies are legally responsible to publish annual accounts detailing such things as the company’s turnover and profits along with directors salaries and much more besides. This involves accurate and detailed record keeping and can incur additional costs if you employ someone to do this for you.
- Reduced Privacy – As a limited company, your businesses accounts are available for public inspection.