The decision to become a self-employed freelancer can be a rewarding choice that allows an individual to work autonomously under their own terms. Of course, it can also be an organisational and taxation nightmare for the unprepared. Self-employment status affords privileges but also responsibilities, and may or may not be the correct choice for a person depending on services rendered, business goals and existing and future clients and contracts.

Forming a Business Entity

Self-employed individuals can choose to trade in different forms. They can trade either as sole traders, partnerships, limited companies, or as co-operatives. As sole traders, freelancers operate individually, while partnerships involve two or more freelancers running the business.

Self-employed persons who operate limited companies form separate business entities distinct from their owners. In co-operative organizations, businesses are owned by the people who organize it.

The HMRC Determines Self-Employment Status

The H.M Revenue and Customs classifies working individuals in three ways:

Employees: Employees are provided work and labour tools by the employer. They contribute regular working hours, either through a PAYE umbrella company or regular company. Employees receive benefits, overtime and vacation.

Workers: Workers are temporary, short-term casual workers, or agency staff who work irregularly or seasonally.

Self-Employed: Self-employed individuals retain complete autonomy over how and when they work and can also hire substitutes to replace them when necessary. Self-employed individuals contribute to class 2 NIC (National Insurance Contributions) on their own.

IR35 and the HMRC Status

For taxation purposes, the HMRC is empowered to define self-employment status. The H.M. Revenue’s employment classification affects not only taxation issues for freelancers, but worker’s rights as well. The HMRC may determine, after reviewing individual business contracts, that there is mutuality of obligation between the client and provider, that there is no autonomy retained by the contractor or that there is no right to substitute work. The HMRC may then fail to grant self-employment status to a person or entity.

Failing the self-employment test according to the HMRC could make a self-employed freelancer liable to pay schedule E IR35 taxes. IR35 addresses ‘disguised employment,’ and taxes freelancers (and/or their limited companies), who have cited their employment status as self-employed, but were technically employed, thus avoiding tax.

Avoiding IR35 Using PAYE Umbrella Companies and Limited Companies

One obvious way for freelancers to avoid being caught in the IR35 hole is to have contracts reviewed by tax specialists. Another way of solving the ambiguous employment status is to either register services with a PAYE umbrella company or form a limited company.

A PAYE (pay as you earn) umbrella company pays a salary minus national insurance contributions, and makes paperwork infinitely easier. Professional insurances and expense invoices make providing short term services relatively simple using PAYE umbrella companies.

Forming a limited company is a decidedly more complicated endeavour. Those freelancing long term and operating under contracts that already fall outside of IR35 may benefit from setting up a limited company. This is also the most tax efficient method, but also requires day to day administration and the meeting of several legal requirements.

A tax specialist can help determine the appropriate business entity for aspiring freelancers.

There is a craze apparently sweeping the UK. Merging together pictures of celebrities with money notes from around the world. The mix looks surprisingly natural for some;

Julie Roberts can be seen here with a dollar note for a head. With the reported fees she commands for her films, it wouldn’t be too farfetched to suggest the money has gone to her head would it?

Here, it is difficult to tell if Mr. Bean looks excited or shocked. Perhaps he is a combination of the two. He is on the front of a Filipino peso note after all.

‘King of cool’ Steve Mcqueen is doing what he does best in this mashup. Star of ‘The Magnificent Seven’ was once the highest paid actor in the world; No wonder he looks so at home on the front of a note!

A slighter younger Brad Pitt here, with a $50 wedge for a jaw-line. Nowadays, Pitt possesses a similar scruffy beard. A sign of things to come maybe?

It really depends on your situation. If you are still in an early and fledgling relationship then I think that you shouldn’t have to share your debt problems with your partner. It is more about diverting the actual truth rather than lying.

If you’re in a long lasting relationship then couples should share debt problems and should not lie to each other about their problems. This is what I do, and I find that a problem halved is a problem solved. I often share my financial problems with my mother who is also willing to lend a helping hand whenever I need it.

My sister has suffered from debt in the past, and did not share it with her husband for a long time. He was unaware that she had huge debts on her credit card. Eventually it all came out, and they divorced suddenly. She is now financially solvent and has no more debt problems.