As a limited company freelancer you will invoice your client and the funds will be paid into your business bank account. It is important to understand how that translates into money in your pocket.

Typically a director will make payments out of a company bank account to their personal bank account for one of three reasons:

  1. Salary
    Typically this is paid from your limited company to your personal bank account on a monthly basis.
  1. Dividends
    Dividends are likely to form the main source of income from your limited company. Dividends are paid out of the after tax profits of the company. Like salary, they are paid by making a payment from the business bank account to your personal account.  They can be paid as frequently or infrequently as you like but do require preparation of dividend paperwork.
  1. Expenses
    It is likely that you will have incurred some business expenses personally. Each month you can reimburse those expenses by making a transfer from the business bank account to your personal bank account.

All of the above will be explained to you by one of our expert accountants.

Dividends are paid out of the after tax profits made by the company. Your FreeAgent account will help you understand this and we are here to help with any questions.

You should consider when making a dividend payment that the company should have sufficient funds in the bank account to pay any outstanding or upcoming tax liabilities.

It is also important to understand that paying a dividend will mean that personal tax becomes due. This tax is payable annually via your self assessment tax return.

As a limited company freelancer you will be expected to invoice your client for services provided. You will be able to create all your invoices using your FreeAgent account. If you operate through an agency they may operate a self-billing system where you simply submit your timesheets and the agency creates the invoice on your behalf. If this is the case, you will still need to create an invoice in FreeAgent for your company records.

As a freelancer it is important that you understand IR35 (also known as off-payroll working). Introduced in 2000 to stop people starting up limited companies to carry out the same jobs as permanent employees (known as disguised employment), IR35 looks at your employment status on an assignment by assignment basis.

You need to be aware of IR35 and it is beneficial to have any contracts reviewed for their IR35 status.

At Taxevo, we are here to help and we offer IR35 reviews and advice on all out packages.

If you are working for one client at a time, taking up all of your available working time, then you need to consider the following:

1. Control
As a freelancer you will be expected to have autonomy over what you do, when you do it, how you do it and where the services are performed.

2. Personal service
A contract is between the client and your company but who provides the services? If there is a lack of personal service then you wouldn’t necessarily have to carry out the work and you could send a substitute in your place.

3. Mutuality of obligation
As a freelancer you should only work to carry out a set task or project. There should be no obligation from the client to offer further work and no obligation from you to accept it. Further work outside of the original assignment should be agreed via a new contract.

4. Other factors

  • Accurately reflects your working practices
  • Financial risk
  • Not part and parcel of the client’s organisation

The simple answer is yes you can have a company car but for most freelancers it is not advisable due to the tax liabilities involved.

You are usually better off claiming mileage from the company for the use of your personal car for business trips. You can get 45 pence per mile for up to 10,000 miles and 25 pence thereafter.

A business bank account is essential and we can assist in setting one up with our banking partner if you wish. You’ll need this to run all of your business transactions through and keep the company money separate from your personal money.

It is important to understand all the business expenses you can claim when running a limited company. Our handy guide gives you all the answers.

It can be beneficial to have your spouse or partner as a shareholder, employee or both. Speak to one of our experts to discuss your circumstances in more detail.

As a freelancer you should protect yourself against any claims with the relevant business insurances such as professional indemnity, employers liability and public liability. We can help you with this by referring you to our insurance partners.

We do not offer this advice but have partnered with an independent financial advisor who will be happy to provide advice on pensions, mortgages, investments, life assurance, critical illness cover, income protection, estate planning and wills.

Get in touch with us for a referral.

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