Very different legal situation. Self-employed means you're trading as yourself. No limited liability, you're not on salary, everything goes straight in and out of your personal accounts. Invest badly in plant (if, say, you're running a small business) and end up illiquid? You can be declared personally bankrupt. It's not a huge risk for a writer as long as they do due diligence on their research, don't plagiarize, and don't libel anyone, but it can happen. Flip side: you don't have the overheads of running a company.
There are a lot of folks who operate as a one-person limited company. "The company" does the work and pays them a wage. My accountant's advice was not to bother -- firstly, the company is taxed on any profits it makes, and secondly, you get to pay income tax on top, and thirdly, you have to file annual audited company accounts (yet more expense).
The reason it generally happens is because some employers insist that contractors work for another company so that they (the employer) can maintain the fiction that they're merely paying another company to provide a service and have no obligations to the contractor under employment law -- it's a work-around for the IR35 accounting regs (basically HMRC determined that if you hire someone to work in your office under your direction using your equipment, you just hired an employee, not a self-employed contractor -- the big cos then turned around and responded by paying a single-employee company to do the job, evading the obligation to recognize the employee's rights as well as paying their tax under PAYE).
I'm still convinced that a yearly earnings cap could be combined with some kind of smoothing mechanism to deal with irregular income streams, although it might turn out to be the case that it's more paperwork than it's worth for most people who could be affected (and they'd only find out after they fell foul of it that they should have set up the paperwork, of course...).
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andrewducker) wrote2012-02-09 01:22 pm
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There are a lot of folks who operate as a one-person limited company. "The company" does the work and pays them a wage. My accountant's advice was not to bother -- firstly, the company is taxed on any profits it makes, and secondly, you get to pay income tax on top, and thirdly, you have to file annual audited company accounts (yet more expense).
The reason it generally happens is because some employers insist that contractors work for another company so that they (the employer) can maintain the fiction that they're merely paying another company to provide a service and have no obligations to the contractor under employment law -- it's a work-around for the IR35 accounting regs (basically HMRC determined that if you hire someone to work in your office under your direction using your equipment, you just hired an employee, not a self-employed contractor -- the big cos then turned around and responded by paying a single-employee company to do the job, evading the obligation to recognize the employee's rights as well as paying their tax under PAYE).
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I'm still convinced that a yearly earnings cap could be combined with some kind of smoothing mechanism to deal with irregular income streams, although it might turn out to be the case that it's more paperwork than it's worth for most people who could be affected (and they'd only find out after they fell foul of it that they should have set up the paperwork, of course...).