Company formation
Professional Contractors Group – Guide to Freelancing: Running a Freelancing Business

ALL ABOUT AGENTS Why do I need an agent? You do not have to work through agents if you are able to find work directly for a client by yourself. Agents are basically outsourced buying operations for clients – the better ones also act as an outsourced marketing service for you. At present around 75% of contract work is secured via agencies. How do I choose an agent? Primarily, you will need an agent who can use their client base to find you work, offers good contract terms, is prepared to take time to get to know you and your skills and expertise (so they can sell you effectively) and who will pay promptly. Some of the big agents offer extra “perks” such as discounted training schemes but these extras really do not add up to much over the course of a contract. Start by looking at agents offering a work opportunity you may be interested in. Nowadays, a “good” contract is outside of IR35 and on true business-to-business terms. A “bad” contract contains clauses that restrict your ability to work for clients or place personal liability on you or your family. Typically, this sort of contract will look more like a contract of employment than a business contract. There have been several relevant court cases regarding the status of freelancers (outside of the IR35 issue) e.g. O’Murphy v Hewlett Packard (2001). Because of the uncertainty regarding status and employment rights many clients insist on outsourcing contracts through agencies, while some clients use Preferred Suppliers, which leads to a restriction of choice. However, if you can find direct work it may help your IR35 status and you may be able to negotiate a favourable rate. Try to find out as much as you can about the contract from the agent before you give permission to send your details to the client. Do not let agents put you forward for a role for which you are not suitable. Agents are required to ask your permission before submitting your details to a client. Some agents are Associate Members of the PCG. They have access to non-IR35 contracts from the PCG and receive PCG newsletters. They are therefore more likely to understand the issues facing freelancers than non-Associate agents. You could consider having your own company contract and terms and conditions of supply of service drawn up by a legal expert. Some agents are already willing to accept such contracts. The PCG has a list of recommended legal experts who can help draw up such contracts. Once your company has such a contract it can easily be adapted for direct to client use as well. How do I find a contract? Most contracts are still obtained via agents, although increasingly freelancers are relying on the Internet or personal contacts to find work. You should have an updated business profile and CV (or consultant profile) to send out. Most agents use email. Agents may want to register your details on their database but, in reality, most contracts are found on one of the freelancing job websites before the agent ever searches the database. Something approaching 80% of the agency freelancing market now passes through the Jobserve, Jobsite and Engineers on the Web websites. Freelancers search the online contracts database and, if they find a contract they like the look of, submit details via email to the agent or client who is advertising. If you submit your details to an agent and hear nothing in the next few days, you have not been selected for interview. Apart from Jobserve and other contract websites, PCG members are using the PCG Portal to find work. What information should I send to an agent? Once you have selected an agency to represent you then send them your business profile, CV or consultant profile with detailed descriptions of the projects that you have worked on, detailing all of your relevant skills, qualifications and companies that you have worked with. Do whatever you can to make the CV easy to read and be clear on your speciality. It will save you a great deal of time in sifting through phone calls later. Bear in mind that you will have to make regular calls to these agents to update them with your latest projects and whether or not you are currently looking for a new contract. Agencies will also need basic details of your business, such as company and VAT registration numbers. Some clients may require references. Many agencies have adopted the iProfile as an industry standard method of holding your details. This is a web-based CV that is automatically created for you when you send your CV to an iProfile Compatible agency and, as an industry standard, it can be re-used with other agencies as well. The iProfile is designed to contain a clearer definition of your skills, qualifications, experience and work preferences than a paper CV so that agencies are able to match you faster and more accurately to their clients’ requirements. How do I make sure I get the right contract at the right rate? Much of this comes down to your interview and negotiating technique. Remember this is a two-way process and is your only opportunity to find out whether you are committing yourself to six months doing work which is not right for you. Make sure you ask all necessary questions to understand the task you are looking to undertake. This is also your chance to improve your position with the client and the agent. If the client really wants your company’s skills and experience, you can generally get a better deal. The agent will usually be paid commission as a percentage of your hourly rate, anywhere from 5% to 25% depending upon industry and sector. So the agent only gets paid if you get work. Some clients have agreements with agencies to supply freelancers on a fixed level of commission. In this case, the agent’s margin is usually non-negotiable, so if you want more money it will need to come from the client. You therefore need to push home your advantage during the initial discussion with the clients. Like all sales meetings it helps if you have researched the potential client – it will impress if you clearly understand what they do and their market. Otherwise, your negotiations with the agent are just as important as those with the client. If the client really wants to hire you, this gives you a stronger hand to take a larger share of the money being paid to the agent. Contract negotiation is not just about getting more money. You may want to secure a non-IR35 contract, which can reduce your tax and NI liability. You could also consider negotiating the right to work from home, more project control and so on. A rate will often be slightly higher if you accept payment terms of 30 days rather than 7. If you are nervous about the thought of going for lots of interviews or negotiating, remember that it is just a normal part of freelancing and gets easier with practice. Don’t take it personally – you are no longer an employee, so this is a straightforward business-to-business negotiation. There are many books you can buy to improve your negotiating skills and some local Chambers of Commerce run negotiating courses. Does it matter how much commission the agent gets if I’m happy with my rate? Sometimes it does. Let us say you are getting paid £25 per hour and the client is paying £50 per hour for your services. All clients expect to pay an agency margin but, because some agents have two-sided non- disclosure clauses, the client may, in this case, think you are a £40/hour freelancer. This will have an impact on the level of expertise the client will expect you to have. This, in turn, could have a significant effect on the relationship you have with your client during the contract. So, make sure you use the interview as an opportunity for you and the client to gain an understanding of the relationship between yourselves and the agent. Do I have to use an agent? There is no reason why you have to use an agent but many freelancers find that this is the easiest way to secure work. Can I rely on agents to represent my business? Some agencies have gained a poor reputation among freelancers. This is mostly due to bad service or giving misleading information about a contract. However, they are certainly not all bad, and perform a useful function for many freelancers. When dealing with an agent, remember that fundamentally they are salespeople. They want to \"sell\" you a contract and to \"sell\" you to the client. This is how they get their commission. They are businesses, first and foremost, in a competitive world. Many agencies are experiencing difficulties in the current economic climate, which is leading to increased competition. PCG members regularly share experiences about agencies and can point you in the direction of good ones. Have a look on the PCG forums. Timesheets Most agencies pay on the basis of timesheets signed by a representative of the client. The exception will be fixed-price work, although even here the timesheet may be the recognised indicator of progress. Many clients also have project time sheet systems. Typically a freelancer will raise an invoice on a frequency agreed at contract negotiation time, usually weekly or monthly, which is reconciled with the signed-off timesheets. It is in the interests of all parties that timesheets be filed regularly and accurately as they are the basis for clients’ and agents’ cashflows and ultimately the freelancer’s income. Recommended reading “Negotiating for Dummies” by Donaldson and Donaldson, or any other introductory book on negotiation. Useful Links The PCG Portal: www.pcg.org.uk/portal Online agency freelancing database: www.jobserve.com Online guide to getting the most out of your agent: www.ctm.uk.com/freelancing/agencies/index.html SECURING WORK Advertising your skills - the CV or Consultant Profile A well-thought out CV is as important for a freelancer as for a permanent work-seeker, if not more so. Some freelancers produce glossy company brochures and consultant profiles but clients are generally most comfortable with the traditional CV, which even the large consultancies provide when putting their staff on-site. The advice on good CV practice is as varied and contradictory as there are recruiters. Core advice would include: • Keep it short and to the point: 5-7 pages maximum • Include a ‘skills summary’ at the beginning • Avoid embellishing the truth Many agents rework candidates’ CVs to an in-house format and there are attempts at creating industry- standard formats, such as the iProfile (http://www.theskillsmarket.com). Always check if this is likely to happen with your CV and ensure that the resulting document reflects the original faithfully as there is nothing more embarrassing than turning up at a client for an entirely inappropriate role! Alternative forms of advertising Many other forms of advertising your business may present themselves. Entries in Yellow Pages or trade directories, such as those produced by the Chambers of Commerce may open up avenues to clients not covered by the traditional agency route. Some freelancers set up web sites highlighting the services their company provides; often these are simply an electronic rendering of the CV and will depend upon the degree of effort you are prepared to put in. Business cards are an important vehicle for raising your profile with people you meet and can be an effective form of advertising. UMBRELLA and COMPOSITE COMPANIES My accountant/agent suggests I should work through an umbrella company. An umbrella company is a company run by someone else. You may still have shares in the company but someone else will be director and company secretary. Basically, you become an employee and the company is run for you. There are two broad types of umbrella company: the first is where you still hold shares in the company and are paid dividends. These are usually called \"composite companies\" and they will have several freelancer shareholders each with their own class of shares on which they receive dividends based upon the income they have brought into the company and the expenses and salary they have drawn. You can still get the tax benefits of dividend payment. The other is where you are simply a standard PAYE employee and receive no dividends. This latter type is similar to being employed by a service provider, although the managers of the umbrella may have negotiated more generous expense arrangements with the Inland Revenue. Umbrella companies come in all shapes and sizes and can be quite complicated. Some offer you lots of benefits; others are no different from standard temporary employment. If you have any doubts, you should seek independent advice from a qualified accountant before signing up. What’s the difference to working through my own company? Firstly, the umbrella company agent will naturally wish to be paid for the service. This will generally cost you around £100 + VAT per month, which cost may be offset by the more generous expense arrangements. The benefits of these differences in expenses will depend upon your individual circumstances and may well change over time. Secondly, if another business is running your company, it is in their interest to minimise their administration costs and maximise their own profit. If you take an interest in running the company yourself, you have more incentive to make sure the company is run efficiently, for your own benefit. The benefits for the freelancer include having someone else handling all the company administration, removing the requirement for the freelancer to do so. This could be a substantial time saving for the individual as well as removing the need to be aware of the legal requirements and risks involved with running a limited company. Some schemes also come with built-in insurance cover for, for example, IR35 investigation. Will an umbrella company protect me from IR35? No. Many agents believe working through an umbrella company in itself will protect you from IR35. IR35 status is determined by your working relationship with the agent and client and the contracts these relationships are based upon. Therefore, IR35 applies in the same way to umbrella companies as it does to limited companies Will an offshore company protect me from IR35? Some freelancers have been told that they can use an offshore company to avoid IR35. This is not the case. It does not matter where your company is incorporated, as this does not affect how the Inland Revenue determines IR35 status. There are freelancers working in the UK with companies incorporated in countries such as Ireland, the Netherlands and so on. There are reciprocal legal and tax agreements between the UK and these countries. However, some agents and clients are nervous about dealing with foreign companies. While the PCG cannot comment on specific cases, you should be aware that some of these arrangements could be subject to scrutiny by the Inland Revenue and indeed some of these schemes have already been seen to get into some hot water. Careful investigation should be applied before entering into any of these arrangements. GETTING PAID Do I need to pay myself the minimum wage? If you are a director of your own company then the minimum wage legislation is unlikely to be applied, unless you have a contract of employment with your company. However if you work through an umbrella arrangement you will have to pay yourself at least the minimum wage. How should I pay myself? As a freelancer you have far more control over how and when you are paid. You can pay yourself just enough to stay under the higher rate tax bracket and use your partner’s tax allowance too if they are shareholders or employees of the company. You can reduce your total tax burden by paying a higher proportion of your income in the form of dividends, which do not bear National Insurance, and the rest as salary. However, some accountants advise that you should pay yourself a “reasonable” salary of, say, at least £20,000 per annum (or some similarly random amount) so as to reduce the likelihood of being caught by IR35 or the threat of an Inland Revenue investigation. However, if you pay yourself a salary of over £4,615 (based on tax year 2002/2003 rates) per year in salary, you will still be part of the National Insurance scheme and be eligible for the State Pension and social security benefits. This salary is the top of the nil band, which means that no National Insurance is paid. NB this nil band is unchanged for 2003/04. How should I pay myself if I am caught by IR35? You should continue to use the mechanisms above. There is no requirement under IR35 to pay yourself more salary, nor will paying yourself a salary protect you from IR35. You should make allowances for the extra tax in the company’s accounts but you need only pay the tax annually in April. Whilst failure to draw the net salary component of this in the same tax year will result in this being subject to corporation tax as company profits (dividends can only be declared from post corporation tax profits), retaining the tax component until the year end will increase the interest you can earn on it. What are the payroll requirements of running a limited company? Even if you pay yourself mostly through dividends you will probably receive some kind of salary from your limited company. An employee’s salary is subject to certain taxes that must be accounted for by the employer – in this case, your limited company. These are: • PAYE (Pay As You Earn) Income Tax • Employee’s National Insurance Contributions (NICs) • Employer’s National Insurance Contributions (NICs). The first two are payable by the employee and deducted \"at source\". That is, they never even reach your bank account and are shown as items on your payslips. An employee is legally entitled to a payslip showing tax deductions and any tax due is paid directly to the Inland Revenue by your limited company. Your limited company will need to run a payroll system so it can properly account for PAYE and NICs. It is fairly easy to work it out manually yourself. The Inland Revenue provides guidebooks that show you how to do it. However, if you maintain your own company accounts using simple accountancy software, you can buy an extra payroll module that will calculate the tax and produce payslips for you. Alternatively, you can ask your accountant to manage your payroll. It is advisable to draw a salary in excess of the NIC nil bands from a limited company to ensure continuity of contributions and therefore the right to social security benefits. Do I need any kind of insurance? Yes. You need to look at: Personal insurance – Are you using a room in your home as an office? Does the company (your employer) own your office equipment? You need to make sure this room and the equipment is still covered by your home contents insurance, or specific business insurance. If you use your car to travel to clients’ sites, make sure you have appropriate cover. Most freelancers require at least \"Class 1 Business Use\" on their car insurance policy. Employers Liability Insurance, Public Liability Insurance and Professional Indemnity Insurance Employers Liability Insurance is a legal requirement of all limited companies. However, directors are usually excluded from claiming on the insurance even though they have to buy it! It insures employees against injuries caused in the workplace. Public Liability Insurance covers any damage you could do in your line of work, such as dropping a PC box onto a passer-by. Professional Indemnity Insurance covers you against being sued for malpractice by a client. Although only the first is a legal requirement (and strangely useless for most freelancers), you are advised to have all three, with clients frequently insisting upon some level of professional indemnity cover. If the Inland Revenue do decide to investigate your company, you will need the services of your accountant to help you and possibly additional legal advice. PCG members enjoy free tax investigation insurance . For more information, see www.pcg.org.uk/tax_invest_insurance.html. As a freelancer you no longer have the safety net of a permanent employer to pay for sick leave. It is advisable to investigate Permanent Health Insurance to cover your personal outgoings should you ever be unable to work for long periods.

Company formation
Directors’ Briefing: Performance Appraisals

Maintaining employees’ focus and motivation is essential if they are to make a full contribution to your business. Performance appraisals actively involve employees in understanding what is expected of them. By setting agreed objectives — and later reviewing the results — each employee is made responsible for his or her own performance. This briefing outlines: ◆ Thebenefitsofusingperformance appraisals. ◆ What to include in the self-assessment form you give to employees. ◆ How to prepare for the appraisal meeting. ◆ How to conduct, and follow up,the meeting. Benefits of appraisals In the rush of everyday work it can be difficult to manage all your employees well. An appraisal is a regular opportunity to identify — and deal with — all the most important issues facing the employee. A. By clarifying the employee’s key objectives, you make it possible for the employee to achieve or exceed them. ◆ You use each appraisal to set new objectives with the employee. You can use a personal development plan approach to increase the desire of the employee to improve. B. By recognising achievements during the previous period, you create the motivation to achieve even more. ◆ Actually saying ‘well done’ or ‘thank you’ may seem unimportant to you, but acknowledgements like these are extremely important to the employee. C. By identifying and correcting problems, you improve the employee’s productivity. ◆ An appraisal gives you an insight into the work being done and the employees who are doing it. D. By asking for feedback and ideas, you find out how to improve your business. ◆ You can receive useful feedback on your performance as a manager, including your management of other employees. Appraisals show your employees you care about their problems, their aspirations and their views. Done well, appraisals result in employees being confident and focused on their objectives. Self-assessment questionnaire Let the employee know well in advance when the performance appraisal will be. Ask the employee to complete a self-assessment questionnaire for you as part of the preparation. Different levels and types of employee may need different questionnaires. But all the questionnaires should include open questions such as the ones below. A. How well have you performed since your last review? ◆ What were your key objectives (see 5) and did you achieve them? ◆ What problems did you encounter? ◆ What did you do really well? ◆ In which areas do you think you could improve your performance? B. How would you rate your own skills? ◆ What are your strengths and weaknesses? ◆ Are you well organised? ◆ Can you work on your own initiative? C. Are you a team worker? ◆ How well do you get on with others in your team? ◆ How well do you get on with others in the company? D. How is your attitude to work? ◆ What do you find most or least interesting in your job? ◆ Do you have any interests or abilities which could be better used? ◆ How flexible are you? ◆ How punctual, reliable and committed are you? E. What do you think your key objectives for the next six months should be? ◆ What help and training do you need? Use questions which are easy to understand. Make the purpose of the review clear (eg that it is not a pay review, which is a separate issue). Appraising under-performers Carrying out an appraisal of an employee who is under-performing requires particular skill. ◆ Tackle problems as and when they arise, rather than waiting for an appraisal. The appraisal is then a review of known problem areas. ◆ Confirm what the minimum targets and standards are that the employee should be reaching. These will have been set at the previous appraisal, or earlier. ◆ Compare the employee’s performance with these targets and standards, which must be measurable. Provide specific examples and evidence of under-performance. Focusing on performance makes heavy criticism (if necessary) much easier, and helps you avoid personality issues. ◆ Be supportive, constructive and fair. Look at the problems from the employee’s perspective. ◆ If you are in a disciplinary situation, follow the correct disciplinary procedures to avoid possible litigation by the employee. ◆ Continual monitoring of the employee after the appraisal is crucial, to secure the improvements that were agreed. Manager’s preparation You should prepare a plan for the appraisal meeting. A. Review the employee’s completed self-assessment questionnaire. ◆ Identifytheimportantissuesandfocusthe appraisal on them. B. Review the performance appraisal report which was written following the previous appraisal. ◆ Notewhichobjectiveshave—andhave not — been achieved. C. Think about the big picture, as well as operational issues. ◆ Forexample,thecareeropportunities(or training opportunities) that are open to the employee. D. Work out your objectives for the appraisal. ◆ For example, if there is no opportunity for promotion, your goal may be to maintain the employee’s commitment and motivation. ◆ Deal with any recent one-off problems before the appraisal. E. Have examples (or other evidence) ready to back up the points you wish to make. ◆ For example, if you are concerned that a salesman is neglecting certain customers, and the information is readily available, check when the salesman’s customers were last contacted. This shows the employee that your concern is a reasonable one. F. Write down your meeting plan for the appraisal (see 4). The less you have worked directly with the employee, the more effort you need to put into the preparation stage. For example, you may need to seek feedback on the employee from other people. The appraisal meeting Appraisals should allow employee and manager to express their views freely and frankly. The eight steps outlined below should help you achieve this. A. Explain the agenda (your plan) for the meeting, and what you hope to achieve. ◆ Put the employee at his or her ease. ◆ Start on a positive note by praising the employee’s work in general. B. Ask the employee to talk you through the self-assessment (see 2), focusing on the areas which you have identified as being the most important — typically the key objectives. ◆ Employees tend to be over-critical of their own performance. They also identify problems you were not even aware of. This makes your role much easier. You can focus on helping the employee to find the solutions, rather than having to point out all the weaknesses and problems. C. Add your own views about the employee’s performance. ◆ Take every opportunity to acknowledge achievements and hard work. ◆ Be clear about which areas of performance need improvement. D. Discuss the problem areas and come up with solutions together. ◆ Ask the employee to explain why the problem has occurred. Then ask the employee to suggest a solution, which may match your own ideas. The employee is far more likely to implement a solution that he or she has helped work out. ◆ Look beyond the symptoms to the root of the problem. For example, a problem might stem from lack of confidence, lack of training, or something not even related to work. E. Review the employee’s long-term career plans, if these have changed. ◆ This may unearth new problems or opportunities. For example, you may realise that the employee is looking for another job — in which case you need to either persuade him or her to stay, or make plans for what will happen when the employee goes. F. Consider the employee’s training needs. ◆ Typically this will be one-to-one on the job training. ◆ Also review the value of any previous training. G. Discuss and agree a new set of key objectives for the next period (see 5). ◆ Decide when the next appraisal —or interim meeting — will be. H. Discuss any ideas for improving the effectiveness of the performance appraisal process. ◆ The employee may feel that the process has been unfair in some way. Aim to spend twice as much time listening to the employee as you do talking. Much of the skill of doing effective appraisals lies in your questioning technique. If you ask ‘open’ questions (eg ‘what do you think about...?’), and show genuine interest, most employees will be happy to talk at length. The whole appraisal cycle is built around setting, reviewing and then re-setting key objectives. A. Each objective should be SMART — specific, measurable, agreed, realistic and time- limited. ◆ Each objective must be in an area over which the employee has control. ◆ Give each objective a deadline. ◆ A clear target allows you to measure whether the employee is making the progress you expect. ‘To be a good salesman’ fails the SMART test in every way. But, if it was realistic, ‘to add at least five new customers by the end of the year’ might be a suitable objective. B. Many elements of the job may already be covered by set standards For example: ◆ In an office, you may have standards for answering the phone (within four rings) or handling sales queries (within 24 hours). ◆ In a warehouse, you might have standards for attendance, breakages and safety. ◆ On a production line, you might have standards for output per hour, wastage and machine down-time. For many blue collar employees, much of the appraisal will be focused on reviewing the achievement of standards. For example, the driver of a delivery van might be reviewed primarily in terms of reliability, promptness and breakages. All the general points about appraisals still apply. A van driver needs support and motivation — and has potentially valuable feedback and ideas — like every employee. C. Involve the employee in setting objectives. Otherwise there is a danger the objectives will be unattainable, or simply ignored. ◆ The employee usually knows the job, and its constraints, better than you. Following up A Immediately after the meeting, write up the performance appraisal report. This summarises what has been discussed and agreed, including: ◆ The objectives set for the next period. ◆ Any commitments you or the employee may have made. For example, you might have offered to train the employee in a particular task. The report may include numerical scores for various categories of activity. B. Give the employee his or her own copy. ◆ There should be no surprises. Check that the employee agrees that what you have said is true and fair. C. Give a copy to your own line manager or another third party (such as the personnel manager) to review. ◆ If several managers in your business conduct appraisals, this is a vital check for fairness and consistency. D. There should be an appeals procedure in place, for employees who feel that any part of the appraisal process has been unfair. ◆ For example, the whole matter might be reviewed by a personnel manager. E. Performance management of the employee is an ongoing process for you. ◆ Monitor the employee’s progress towards the objectives that have been set. ◆ Keep using the supportive, collaborative approach that you used for the appraisal. Who appraises who, when? A. It is common practice for employees to be reviewed by their line managers. ◆ If your appraisal system is ineffective, it is probably due to the poor skills of the managers conducting the appraisals. ◆ Train your managers in appraisal skills. ◆ Train your employees in appraisee skills, so that they can contribute effectively. B. Bottom-up appraisal is a more comprehensive approach. ◆ Eachemployeeisappraisedby subordinates, as well as a line manager. C. A 360-degree appraisal is more thorough still, taking in feedback from subordinates, colleagues, superiors, and customers. ◆ One advantage of this approach is that the appraisal is less vulnerable to bias. ◆ A disadvantage is the sheer amount of time the process consumes. D. The optimum frequency of appraisals depends entirely on the circumstances. At the very least, they should be once a year. ◆ If you are trying to motivate a team and drive the business forward, quarterly appraisals may be more appropriate. ◆ An employee who is new, or has moved into a new role, may need quarterly appraisals. ◆ Another employee, who has done a routine job for several years, may only need one appraisal a year. The danger of undertaking too many appraisals is that they are then not done properly.

Company formation
Professional Contractors Group – Guide to Freelancing: Starting Out

Whichever way you choose to operate it is important to appreciate that running a business is not simply working in a different way. Once you set up a business you enter a whole new realm of laws and regulations. It is essential that you begin to think and act as a business, not just as a worker who is operating through a business set up for convenience. For example, by law, if you form a limited company you will need a company nameplate at your registered office, although we have not found any instance of this rule being enforced. You should have letterheads, business cards, a company name and identity. You need to start thinking in terms of the company, not you as an individual. You should think about having a business telephone line installed separate from your private line. If you already possess a desk, computers, fax machine, photocopier, etc., you should consider \'selling\' these to your business, initially recording the value as a personal loan to the company from you (set up expenses). You may also consider putting some of your own personal money into the business as a loan from you to the business. These can be repaid later as the business begins to generate income. It is worth investing a small amount in a good book on Company Law for the businessman. SETTING UP A LIMITED COMPANY Why do I need a Limited Company? Technically, you do not actually need to set up a limited company to be a freelancer. In law, you can work as a self-employed sole trader, as an employee of a composite or ‘umbrella’ company or as a PAYE employee to an agent. Throughout this document we shall use the generic term ‘freelancer’ to cover all self-employed workers, including consultants, interim managers and others. You may wonder why you cannot be just self-employed. a) You can work as a self-employed sole trader if your clients and agents are prepared to engage you on that basis. However, most are reluctant because if your tax status is challenged then it is the client that becomes liable for any additional tax and NIC due. In addition, the 1998 Income and Corporation Taxes Act (Section 134 ICTA 1988) effectively prevents individuals from being self-employed where an agency is involved, as it obliges the agency to treat the individual as if he/she were an employee by deducting PAYE and NI from the payments due. b) A limited company also offers the owners (i.e. the shareholders) protection against liability for the company’s debts. So, if the company should become bankrupt, as a shareholder, you will only lose the value of your shares. As a director you will not be liable for the company debts either, unless it is proved that you have acted fraudulently or improperly under company law. You can still operate as self-employed or as a partnership but effectively you will be restricted to finding clients directly. How do I set up a Limited Company? The quickest and easiest way to set up a limited company is to go to an accountant or company formation bureau and buy an “off-the-shelf” company. You can also purchase off-the-shelf companies from specialist company formation agents (found on the Internet or in Yellow Pages). The name and the Articles Of Association of this company can be very easily modified to your requirements. An off-the-shelf company usually costs £100-£150, although some accountants will set one up for you for free. You will need to notify any changes to the company name, directors, company secretary and the Registered Office of the company to the Registrars at Companies House on the correct forms. You can find out more about this in the guidance booklets available via the Companies House website (www.companieshouse.gov.uk). Alternatively, incorporate the company yourself. This is actually quite straightforward and can be quite a bit cheaper, around £20 or £80 for a same-day service, than using a third party formation service. Guidance is, once again, available from Companies House. What are the legal requirements for Limited Companies? A limited company must have at least one director, a company secretary and a registered office, and must have \"Limited\" or \"Ltd\" after its name. The company secretary can also be a director but a sole director cannot be the company secretary. This means that there must always be at least two people involved in the running of a company. Many freelancers choose their spouse or partner to act as company secretary but your accountant may be prepared to do the task. For the purposes of the average freelancer, the job is largely a symbolic one. The Company Secretary’s job is to ensure that the company is run according to company law but this responsibility is shared with the directors. Ownership in terms of the split of shares in the company is up to you but, normally, 100% of the shares would be issued to you as managing director. Alternatively, many freelancers split the shares with their spouses. In the latter case, be prepared to defend the split of interest in the company should the Inland Revenue ever question it. In general, it is considered best to make the split when the company is first formed. The registered office is where the company \"lives\" for official purposes. This could be your accountant’s office or your home/office (check the terms of any lease or mortgage agreement to make sure there are no restrictions regarding commercial operations). The registered office must be within the jurisdiction in which the company was incorporated. To put it simply, a company formed in Scotland must have a registered office in Scotland, a company formed in England or Wales must have its registered office in England or Wales. Legally, a plaque or sign must be displayed outside the building to show that this is the company registered office, although the PCG does not know of any freelancers who have been prosecuted or investigated for failing to comply. Finally, a limited company must file annual accounts with Companies House and the Inland Revenue. The limited company must also complete an annual shuttle return to Companies House. This confirms who owns and who runs the company. See the Companies House website for more information: https://www.gov.uk/government/organisations/companies-house What does a Director do? The post of director is not easy to define in a few words. Basically, the directors must make sure the company is run properly, according to the law and in the interests of the shareholders. Companies House produces a leaflet (GBA1) explaining the basics about being a director or secretary of a company. There are also many books available that explain the legal requirements of company officers. The directors and company secretary are legally responsible for ensuring that the limited company meets these obligations and is run according to the Companies Act – the statute that governs the running of limited companies. Am I employed by my company? A director of a limited company is not strictly an employee of that company unless he/she has a contract of employment. Many freelancers do indeed draw up such a contract. This would specify the expected duties of that individual and the compensation they would enjoy (salary, holidays, etc.). The existence of such a contract may be a pointer to the director’s work for the company being indicative of non-employment with client companies for IR35 purposes. However, bear in mind that ‘employment’ leads to such responsibilities as the provision of the minimum wage and other statutory benefits. If you wish to set up formal contracts of employment between yourself (and other directors) and your company, it is advisable to get these drawn up by an employment specialist. Some have pre-created standard contracts that you can then tailor to your specific needs. What can a limited company do? A limited company is actually a distinct legal entity in its own right. You are not the same as the \"company\"; the law sees the limited company as a separate \"person\". It has rights and responsibilities. A limited company can own property or equipment, such as computers. The company may have a business account with a supplier, can have its own bank accounts and can hold shares in other companies. Useful links Companies House Guidance for Setting Up a Limited Company https://www.gov.uk/limited-company-formation Companies House guidance booklets: https://www.gov.uk/topic/company-registration-filing/starting-company CHOOSING AN ACCOUNTANT Why do I need an accountant? An accountant can take care of most of the additional work and responsibility associated with running a limited company. Your accountant may also be able to advise you on tax and legal matters and help you manage your personal and company tax liabilities. How do I find an accountant? You can look in the Yellow Pages but you should really choose an accountant that understands freelancing. You will probably spend a lot of time talking to your accountant, so treat this as a long-term relationship and choose carefully. You need someone you can talk to, get along with and, most importantly, trust. There are some large \"freelancer\" accountancy firms aimed solely at IT freelancers. These specialise in freelancer issues, such as IR35. Some users of these firms have reported that the overall standard of service is variable and they can have issues dealing with non-routine matters, although it is worth noting that some of specialist accountancies offer money back guarantees on their services. Equally, problems have also reported with smaller or non-specialised accountancies. When choosing an accountant, you should look for: Personal recommendations – ask other freelancers or post a question on the PCG forums. Membership of a professional body such as one of the Institutes of Chartered Accountants. This offers you more protection against malpractice. Remember that anybody can call themselves an accountant, qualified or not. Similarly, accountants who specialise in handling freelancers are usually Limited companies and, therefore, in the event of there being a complaint, the freelancer has full rights under UK law. Evidence that the accountant understands freelancing. Does the firm handle the accounts for any other freelancers? What does this accountant know about IR35? Location – it really does not matter where your accountant is but, if you have any problems, it is nice to know you do not have to travel far to sort them out. Can’t I do it myself? You can keep your company accounts yourself if you wish, using a spreadsheet or a simple accounting package such as Sage or Quickbooks (both around £125 +VAT). This should not take you more than a few hours a month. However, you should still get a qualified accountant to draw up the end-of-year accounts. Your accountant will also calculate your corporation tax liability and complete the corporation tax return for you. It is your legal responsibility to make sure your accounts are correct so it really is worth the cost. But, if the thought of wading through all those receipts fills you with horror, you can get your accountant to do the whole lot for you. How much do accountants cost? A good business accountant will charge around £80–£100 + VAT per month. For this, the accountant will draw up your end-of-year accounts and may prepare your VAT returns. This is the minimum level of service most freelancers use. If you want your accountant to do any more for you, like preparing your expenses or issuing invoices, you will be charged accordingly. Useful links Institute of Chartered Accountants for England and Wales: www.icaew.co.uk Institute of Chartered Accountants for Scotland: https://www.icas.com Association of Chartered Certified Accountants: http://www.accaglobal.com/uk/en.html CHOOSING A BANK Why do I need a separate business bank account? “You” are not the same in legal terms as “the company”, so “the company” needs its own account. Always keep your personal affairs separate from those of the company. Some freelancers prefer to have the separate accounts in separate banks so the bank cannot use knowledge about your business to make decisions regarding your personal finances. However, others prefer to develop a relationship with a particular bank. Should I just use my local bank’s business account? You do not need to choose a bank with a \"local\" branch. There are specialist freelancer accounts and high- rate business savings accounts available over the Internet and from non-high street banks. These accounts are generally better value. Many freelancers choose to run two accounts – one with higher interest where they set aside money for tax and VAT. What sort of account do I need? As a freelancer, you’ll be looking for an account that offers the following: Free banking. A good rate of interest on cash savings (you will be keeping thousands of pounds of tax money in here). Rates vary but should be within a couple of percentage points or so of the current Bank of England rate. Use a separate business savings account to earn as much interest as you can. Remember that the interest earned on company money is outside of IR35. You’ll need a company chequebook. A company credit card may be useful but many freelancers use their personal credit cards for expenses and then claim these back from their company. In this case, be careful to clearly separate business and personal use! Freelancing companies rarely need loan finance, an overdraft or any other credit arrangement, so you may not need an account with this facility. Why not ask on the PCG forums about the best banking deals currently available for freelancers?

Company formation
Professional Contractors Group – Guide to Freelancing: Introduction

The Professional Contractors Group is the trade association that represents the interests of freelancers and is a not-for-profit organisation run by freelancers for freelancers. It has evolved to become the freelancer’s champion, campaigning on issues that matter to the freelance community, irrespective of industry focus, and is committed to promoting members commercially and supporting their development. PCG is the most comprehensive source of advice and tools to help freelancers cope with the implications of IR35 tax legislation. PCG remains committed to mitigating the impact of IR35 tax legislation and continues to explore every viable opportunity to lift members out of harms way. PCG has made submissions on a variety of topics that matter to freelancers, including Agency Regulations, E- Commerce Regulations, Regulation of Investigatory Powers (RIP) Bill and Security Clearances. PCG’s £100 membership fee is quickly recouped by most members from immediate access to exclusive discounts on professional advice and services. PCG and ATSCo meet regularly to explore and find common solutions to issues that matter to freelancers. Already, a ‘standard\' contract has been agreed that will be offered exclusively to PCG members. The £100 PCG membership fee buys... tax investigation insurance access to free tax and legal helplines discounted professional indemnity insurance discounted books and seminar IR35 analysis and manuals draft sample contracts discounted medical insurance contract review service ...and entry to the freelancer’s online community • • • • • • • PCG supports freelancers in the construction industry who are campaigning for a more equitable tax system that recognises freelancing as a valid business model. PCG‘s IR35 cover has saved members an estimated £4m in taxes and associated professional charges since its inception. PCG’s Tax Investigation Insurance scheme has covered, to date, Inland Revenue investigations involving 300 members. Around 100 cases have been resolved – virtually ALL in favour of the PCG member! PCG was a key influence, in concert with other organisations and individual freelancers, in removing IT skills from the Skills Register used by Work Permits UK to issue so called Fast Track Visas. PCG is continuing to campaign for the elimination of abuses of the Intra Company Transfer mechanism for granting work visas. INTRODUCTION This guide has been written by freelancers for freelancers and is aimed at anyone thinking about or interested in freelancing. It attempts to explain the procedures you will have to go through to set up a freelancing business, how to go about obtaining work and, finally, how to maintain a viable business. Links are given to sites and documents containing fuller information on certain topics. Whilst every effort has been made to ensure the accuracy of the information contained herein. The reader is urged to seek professional advice. Further editions are planned to extend this guide and provide expanded advice and guidance on aspects and implications of the freelancing lifestyle. Visit the PCG website (www.pcg.org.uk) regularly to make sure that you keep updated. Better still, PCG membership costs only £100 per annum.

Company formation
The Ethical Business Guide: Effective Client Relationships

BY VICKY HOAD ACCOUNT DIRECTOR AT BLUE ROCKET BUSINESS SUCCESS RELIES ON CUSTOMER SATISFACTION, LOYALTY AND DEMAND. AS COMPETITION INCREASES IN A TOUGHER ECONOMY AN ETHICAL APPROACH TO WORKING WITH CLIENTS HAS FUNDAMENTAL BENEFITS. Working in PR, relationships are at the centre of everything we do at Blue Rocket. Thankfully it’s very different to the superficial wining and dining stereotype. Honest, cooperative and genuine relationships have to be maintained with each and every client so that together you can fulfil an organisation’s development goals. The best campaigns come from working in partnership and over the years many of our clients have come to see their Blue Rocket PR team as an extension of their own organisation. This concept of treating clients as partners is relevant to many different business sectors. Here’s a quick guide to what’s involved: MANAGE EXPECTATIONS Relationships get off to the right start when everyone knows where they stand. Before a new client signs up lay clear boundaries about what they can expect. Be clear about what you can do for them and what you can’t. Explain how you will treat them and what their responsibilities are as a client. This might not sound like a great sales pitch but this honesty often wins prospective clients by showing you are trustworthy. It also sets your relationship up in the right way. It can be useful to set realistic, measurable goals from the beginning so that the client is totally clear what they’re paying for and you know what you are aiming towards. Asking new clients upfront what they would consider a successful relationship is a good way to find out what they really want. It is sensible then to repeat this goal-setting process at regular intervals to help ensure a long term relationship. FIND OUT HOW CUSTOMERS WISH TO BE TREATED Treat every client as an individual and be prepared to be flexible. For example, while some clients may prefer regular detailed reports others will just wanta top line review showing that activity is on track. Similarly, some may feel abandoned if they don’t speak to you over the phone every week, while others are too busy and prefer to be emailed. Make it your mission to find out how customers wish to be treated and adapt to them. MAKE IT YOUR MISSION TO FIND OUT HOW CUSTOMERS WISH TO BE TREATED AND ADAPT TO THEM BE HONEST Some companies will do anything to win business and unfortunately directly lying to clients is frighteningly commonplace. While all decent organisations endeavour to tell the truth it can be tempting to hide things from clients – especially after a mistake. Companies may get away with it on occasion but it only takes one scandal to lose client confidence and damage a hard-won reputation. No business is perfect and there are times when you’ve got bad news for customers. It is essential in these circumstances to tell them what’s happened straightaway, why it happened and what you are doing to fix it. I’ve seen the importance of this more upfront approach from personal experience. With media relations campaigns sometimes the first strategy simply doesn’t work and you have to find out what went wrong and start again. On other occasions a journalist might promise to feature your client then let you down. Many PR companies carry on struggling behind the scenes while presenting a rosy picture to the client. Yet if you tell a client straight away, then work hard to solve the problem, they are very understanding. Once they know what’s happened they can become your ally in getting around any obstacles you might face. FAIR, TRANSPARENT PRICING There’s nothing like an unexpectedly large invoice for souring a relationship. Make sure all charges are absolutely transparent and check every client understands them. Where possible services should include all costs rather than coming with hidden extras. If clients ask for extra work make sure they fully understand the cost implications before going ahead. BEFORE A NEW CLIENT SIGNS UP LAY CLEAR BOUNDARIES ABOUT WHAT THEY CAN EXPECT MAINTAIN CONFIDENCES Service providers are often privy to confidential information that could cause damage in the wrong hands. If a client shares sensitive information then it must be carefully protected. Promote best practice as well as fulfilling statutory requirements. KEEP LISTENING AND IMPROVING Learn from your clients’ experiences by asking them for feedback and finding out what you could be doing better. Identify the new challenges they’re experiencing and adapt to suit their changed circumstances. Your clients can also be a great gauge of the viability of new services. Working with them in the pilot stage shows how much you care about their needs as well as ultimately creating a more valuable asset for your business. VALUE YOUR CLIENTS Tough times make it more important than ever to provide the best possible service to your clients. Constantly evaluate how you can improve your client relationships and services. This is good business practice anyway but comes into its own in a global recession. Clients need to see that your work is beneficial to their business and competitively priced in the marketplace. They will also need to feel valued by your team and trust your integrity. This ethical approach involves working in partnership with customers and providing them with services that really meet their needs. This simple policy of treating clients as we’d all like to be treated helps businesses forge a stronger and more satisfying future. © BLUE ROCKET AND THE GOOD FOLK 2009

Company formation
The Ethical Business Guide: Ethical Marketing

BY KIM STODDART FOUNDER OF BLUE ROCKET TO SOME PEOPLE THE TERM ETHICAL MARKETING CAN SEEM LIKE A LAMENTABLE OXYMORON, BUT THAT DOESN’T HAVE TO BE THE CASE. Unfortunately we can all quote examples of well-known brands that have used marketing to target vulnerable or inappropriate sectors of society, or to draw attention away from the less attractive elements of their business. The same goes for the PR industry, which hasn’t had the most positive reputation over the years. However, to tar all marketing and PR activity with the same brush is to discount one of the most vital and valuable business processes a small and medium sized enterprise (SME) has at its disposal. So is ethical marketing really possible? The simple answer is yes! In essence, ethical marketing is an honest and factual representation of a product or service that offers clear cultural or social values to the consumer. Fairtrade is an example of production value that few would criticise but which would be far less successful as a concept – and thereby benefit fewer disadvantaged people – without effective marketing on what the term means and how it contrasts with traditional purchasing models. This isn’t to say that your product or service has to be as revolutionary as Fairtrade to be worthy of an ethical marketing strategy. Here are a few tips for enhancing your credibility and giving you even more to shout about. IS ETHICAL MARKETING REALLY POSSIBLE? THE SIMPLE ANSWER IS YES! UNDERSTAND YOUR TARGET AUDIENCE It may sound obvious but you’d be amazed how many companies think they know what their customers want without ever really taking time to check if this is true. The very first step in any ethical marketing programme is to ensure that your product or service is delivering a genuine benefit, after which you need to communicate this in the most appropriate way. Spend time talking to existing and potential clients to find out what they like, and perhaps more importantly what they don’t like about your proposition. Tastes and needs change so this detailed audit should be an annual activity. Once you’re up to speed in this regard then you should assess whether your existing marketing communications plan can effectively transfer information to this audience. Small companies have a tendency to get stuck in a rut and do the same thing over and over again, with little insight into whether it’s actually working. For example, advertising can seem more attractive to the uninitiated because it has an immediate and tangible outcome. It may be that another form of communication is more suited to your business such as a targeted event or PR. The more you know about each element, the easier it is to make an effective and profitable decision. LESS IS MORE In a bid to stand out from competitors it can be tempting to make bold statements that sound great but may not live up to their promises. It’s important to ensure your credentials stand up to scrutiny, otherwise your brand may be damaged. This is never truer than in the area of corporate social responsibility (CSR). So many organisations are involved in ‘greenwashing’ – i.e. making flimsy or inaccurate environmental claims – that nowadays consumers are less likely to view such statements in a positive light. It is essential to consider the long term implications of any marketing activity and avoid the temptation of promoting any initiative, ecological or otherwise, that has little substance. Authenticity and a realistic sense of modesty are incredibly powerful, and people prefer an honest admission of imperfection to over-inflated or downright dishonest pronouncements. In conclusion, ethical marketing is about understanding your brand, product or service and doing your best to develop and promote this in the most effective and least damaging way to the right people. If that sounds like a challenge then seek advice from an expert who will be able to give you unbiased, strategic advice. Divine Chocolate has made its branding and marketing work hard to communicate both chocolate appeal, and its Fairtrade and farmer-owned credentials. Here is Adwoa Asianaa, a member of the Kuapa Kokoo cooperative that co-owns Divine. (credit Kim Naylor) VET YOUR SUPPLIERS In addition to the things you say, ethical marketing is about assessing the materials and suppliers you use to bring a marketing strategy to life, and ensuring these are as environmentally and socially responsible as possible. This is particularly relevant in the area of design and print, where processes and equipment can vary dramatically (see page 8 for a separate article on this topic from ethical design company The Good Folk). It is becoming increasingly common for larger companies to request a full supplier audit before signing a contract, so it’s worth ensuring that yours is whiter than white (or greener than green) if you hope to win big contracts. In conclusion, ethical marketing is about understanding your brand, product or service and doing your best to develop and promote this in the most effective and least damaging way to the right people. If that sounds like a challenge then seek advice from an expert who will be able to give you unbiased, strategic advice. © BLUE ROCKET AND THE GOOD FOLK 2009

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