There are so many ways to work that it can sometimes get very confusing. People generally classify two key ways, you work for someone else or you work for yourself, but there are many different classifications of “jobs”.
The old 9-5
For many being part of team on the payroll of another is their first experience of work. Being employed has many advantages not seen in many other types. Sick pay, holiday pay, employer pension contributions and generally far better income security are on offer, which is why for so many it provides a good home.
Employment comes in many forms, full time, part time, zero hours and many other variations but the tax and national insurance treatment is the same for them all.
Working for myself
The next type of work people do is being self employed. More so than with being employed this has so many forms that they cannot all easily be listed. In the main though you get none of the perks of being employed but do at least get to work your own hours and pay. It can be on your own or with others via a partnership.
The old joke is that most that go self employed don’t realise until it’s too late that the hours are in fact “all” hours! Never mind though it’s not all bad. You get to save 3% national insurance compared to the employed (tax rates are the same). You can deduct the expenses you take on doing the work (largely assumed by the employer in an employment) and will only pay tax on your profit.
You also get the job of having to complete a tax return, have to maintain business records, and possibly become a collector of taxes for HMRC if your turnover exceeds £85,000 (that’s VAT if you’re wondering). As a final thing to worry about you have to get your own insurance to make sure if you make a mistake you don’t lose everything you own!
The numbers of self employed swelled immensely over the pandemic meaning many out there will be submitting their first tax returns by the end of this month. With so many ways to trip yourself up it’s always a good idea to get some help.
Setting up a company
The final main way of working is through your own limited company. This is the most misunderstood way of working. This is probably as a result of the fact that companies have a significant level of legislation and regulation that applies only to them and also that they are separate legal entities. This separation comes in handy in protecting your personal assets but comes at the cost of privacy (companies have to share their activities with the public via companies house) and also regulatory oversight (after all a company assets belong to it and not to the shareholders meaning that there are strict rules on what it can and cannot do).
What should I do then?
The answer on how to structure your work can largely be no choice at all if all you are offered is employment. If you plan to work for yourself then the choice of whether to be self employed or to run your own limited company will depend largely on what you are trying to achieve, how long for and at what size. Like most things in life the right advice up front will often save much hardship down the line. We have written a separate blog post on this here: Should I go to a Limited Company?
We also have a useful guide on which way to structure your business which can be downloaded here: Business_Structures_Which_Should_I_Use.pdf
Our tax team is well practiced in helping business owners ensure they have the right structure. Contact us on: taxteam@robson-laidler.co.uk