Whether you have run your own business before, are looking to change the way you work or are ready to step away from employment and set your own agenda – you may be considering setting yourself up as a consultant. 

In this blog we give you a brief overview of the different ways that you can trade and the important factors to consider. 

Benefits of being a Consultant 

Becoming a consultant brings many benefits. Consultants tend to enjoy a more flexible way of working. They can essentially work from anywhere in the world which is key if travel is important to you. They can determine their own hours and patterns of working which helps to regain a better work life balance or fit in around lifestyle and other commitments. 

Consultants enjoy having the power to decide on who they work with, what clients they take on and what projects they are happy to deliver. They are also able to set their own charge rate, whether they operate under packages, hourly rates or project-based fees. A consultancy business can be scaled up or down. 

Many people choose the consultancy route once they have built a name for themselves and are opting for a slower pace in life or have the financial stability to take the risk of being their own boss. 

As Walt Disney said, “The way to get started is to quit talking and begin doing”. 

One of the first questions to ask yourself is how should I trade? 

There are a few options you could trade as, a Sole Trader, Limited Company or if there are two or more of you in the Consultancy, you may want to also consider a Limited Liability Partnership (LLP). 

What are the differences? 

Sole Trader 

  • You have unlimited personal liability for the business’ debts and obligations. • you are taxed on your earnings after deducting allowable business expenses, which must be wholly and necessarily incurred for the purposes of your trade. Limited company 
  • As a Limited Company your personal assets are separated from the Company’s liabilities, therefore offering limited liability. 
  • A common approach is to take a salary at or around the primary threshold of £12,570, which minimises National Insurance contributions as currently no employee’s NI is due below this level, and the company only pays a small amount of employer’s NI. 
  • Any additional income can be taken as dividends or other forms of remuneration, subject to the relevant tax rules. 
  • A limited company then pays corporation tax on it’s profits.

Limited Liability Partnership 

  • The liability of the Partners is based on the capital they have at risk in the business • It is tax transparent, like a sole tradership, meaning partners are taxed on their share of the profits, however, National Insurance is due on all earnings. 

Current Tax and National Insurance rates 

For income tax, the personal allowance and tax-free threshold currently remains at £12,570. Earnings above this level are taxed at; 

20% up to £50,270, 

40% on the next slice up to £100,000 

60% on income between £100,000 and £125,140 due to the gradual withdrawal of personal allowances.

Any income exceeding £125,140 is subject to the additional rate of 45%. 

Regarding National Insurance, no contributions are due on earnings below £12,570. Above this level: 

Employees pay NI at 8% 

Employers pay 13.8% on all earnings above the secondary threshold of £9,000. 

For the self-employed, Class 4 NI is charged at 6% on profits, with no further “stamp” payments required. These rates reflect the latest government policies and are subject to potential changes in future budgets or fiscal events. 

Finally, the Corporation Tax rate is currently 19% on the first £50,000 of taxable profits and 25% on profits above £50,000, although these rates can be impacted by associated company rules. 

Other considerations 

VAT 

If your business’s turnover exceeds £85,000, you must register for VAT. However, even if your turnover is below this threshold, it may be beneficial to register voluntarily if your clients or customers are VAT-registered, as this would allow you to reclaim VAT on your expenses. 

Insurance 

Insurance is crucial, particularly public liability insurance to protect against claims of injury or property damage. If you have employees, you’ll need employer’s liability insurance. Depending on your business’s nature and risk profile, professional indemnity insurance may also be necessary to cover claims of negligence or errors in the services you provide. 

Marketing 

One of the main risks of being a consultant, is the requirement to win your own business. Your marketing and business development will be key to your success. Establishing an online presence is vital, and you’ll need to set up a website, secure a domain name, and create professional email addresses. Ensure your website is interactive, user-friendly, and meets accessibility standards. If operating as a limited company, display the company’s details, such as the registered office address and company registration number.

Other Operational Considerations 

Other operational considerations include serviced office accommodation or using a portion of your home as a workspace (for which you can claim a £312 annual allowance). If you have a SIPP, you could explore using it to purchase commercial office space. Evaluate your IT hardware, software, and support needs, as well as mobile phone and internet connectivity requirements. Additionally, be aware of potential capital allowances for qualifying expenditures on equipment and machinery. 

How can we help 

Setting up in business requires careful consideration, and a thoughtful approach is advisable when determining how you should structure your business. It is worth considering operating as a limited company, as it allows for more dynamic profit strategies and can help smooth out fluctuations in income levels. But it is sensible to seek professional advice on what structure is appropriate for your own personal circumstances. 

We would be delighted to help you on your journey to becoming a Consultant and enjoying the many benefits that this new career path can bring to your life. 

So, if you are seriously considering this career move and would like further advice, Warren House Accountants would be happy to help. Get in touch with Paige Collins today by calling 07710 098796 or emailing paigec@whagroup.co.uk for further guidance and on your next steps.