On your path to becoming a professional Creator, you may have seen that a few of your peers have opted to set up a limited company for their income - rather than just register as self-employed. There are a few reasons why a Creator might make this decision; but you might not really be sure if it's the right call for you!
Sam Uwins, Accountant for Social Influencers and Online Content Creators at MHA Carpenter Box, will hopefully be able to clear things up...
What are the main differences?
Being registered as self-employed with HMRC involves registering online or over the phone as an individual.Essentially, you are notifying HMRC that you are operating a business, and that you are receiving income that hasn't yet been taxed.
Following this, you will be required to complete a tax return once per year. The tax year runs to the 5th of April every year, and you have until the following 31st of January to file and submit a tax return. We're currently in the tax year that will end on the 5th of April 2019, often referred to as the 2018/19 tax year; and the tax term for this year will need to be submitted by the 31st of January 2020.
A limited company needs to be registered with Companies House, which is a separate government organisation from HMRC. A limited company is a stand alone legal entity from yourself as an individual; you may be registered as the director and the shareholder of the company, but in the eyes of the law - in relation to tax and other laws - a limited company is completely separate from yourself as an individual.
Why would a Creator choose one over the other?
There's a number of things to consider when deciding if a limited company is the right business structure for you. Some of the things that need consideration will include the tax scheme that applies to limited companies over individuals that are self-employed; as well as the additional protection that often operating as a limited company can give you.
If you're operating as a limited company, your liability is limited to the assets that are within the company; so your personal assets - such as perhaps your car, jewellery or home - are protected from the failure of the business.
How can a Creator register as either?
Registering as self-employed with HMRC is relatively easy! There's an online form which will ask you to enter your personal information such as your name, address, date of birth and national insurance number. Once you've registered online with HMRC, they should issue you with a unique tax payer reference (or UTR), and this should be received in the post within about 10 days of submission of the online form.
Limited companies need to be registered with Companies House; and this can also be done online. There's a £13 filing fee for incorporating a limited company, and it often takes about 24 hours to be set up from submission of the registration.
Following the registration, you will receive an incorporation certificate, a standard memorandum, and articles of the company from Companies House. These documents should be kept safe, and may be required when you go through the process of setting up a bank account for the company.
WHEN should a Creator register as either?
A Creator should consider registering right from the outset; so the sooner you can register, the more of the cost that you've incurred in relation to the business that you can include within the company's account or the business's accounts. It's important that you are registered certainly before you raise your first invoice; as you shouldn't be operating as a business without having previously registered even as a sole trader with HMRC or as a limited company.
As a self-employed individual, your student loan repayments are collected as part of the general tax system; so at the end of the year you'll be required to complete a personal tax return. On this tax return, your tax and national insurance contributions will be calculated - but so will your student loan repayments. The student loan repayments will be made at nine percent of your business profits if you're self-employed, or nine percent of your salary and dividend income if you operate as a limited company.