Should you be a company?

Should freelances become limited companies in order to take advantage of Gordon Brown's largesse? In the last budget the chancellor announced that companies with profits of up to £10,000 would not be taxed.

To find out, London Freelance Branch invited company director and prolific freelance Chris Wheal, accountant Eric Longley of Smith and Williamson and financial journalist Nic Cicutti to a branch meeting on 8 July.

The debate was a little one-sided.

Eric Longley said the proposition appeared attractive. On an income of £20,000 you might save about £1500, but the downside was the much more complicated accounts you would have to keep. And you'd be paying an accountant anything from £50 to £400 an hour.

Becoming a company might suit some people, depending on their circumstances, but it must feel right for you, he said.

Nic Cicutti said someone earning £100,000 might save about £3000 from being a company. The real benefits of companies came, for instance, when you earned enough to leave some of the money in the company, avoiding higher rate tax, and only took it out in retirement when you were back on the lower rate.

"Unless you have ambitions to go beyond being a very good writer or photographer, it is not a worthwhile thing to do."

And why was the debate so one-sided? Chris Wheal had had to send his apologies at the last moment. "Too busy making money," a member quipped. Not true, it turned out, but rather a useful metaphor for what the meeting concluded.

© 2002 Ros Bayley