From the outset you need to decide what type of legal structure (company) to adopt for your business as this will determine what you need to do straightaway. This short guide will give you a snap shot of the two most common options and how they affect your tax, legal and financial responsibilities.

Sole Trader

The clue is in the name! You are legally operating as an individual and are responsible for all liabilities that come with the business. If the business makes a loss then you do. By way of an example, if you owe Joe Bloggs money for supplies and are left short it is you who is liable and not the business name. Alternatively if the business makes money then you do personally!

Simplest and less stringent of options but not without obligations! As soon as you start your business there are legal obligations to be fulfilled with HMRC. Make sure you tick off the following: • Register as self employed

• Complete your tax return each year and pay your taxes by the 31 January deadline

• Get up to date with your NI contributions

• Register for VAT if your VAT taxable turnover is over £82k in a 12 month period

• Keep all your receipts and get up to date with all your financial records

Limited Company

You are a separate legal entity owned by shareholders and run according to a Memorandum and Articles of Association which is a either a template document from companies house or one drafted by you or your lawyers. It is a set of rules by which you run your company. Shareholders appoint directors who run the company on their behalf. In most small businesses the Shareholder is the Director and vice versa. Remember money cannot be simply drawn from a limited company but paid through salaries, dividends or loans.

Again the clue is in the title. Your liability unlike a sole trader is limited so debts can be limited to the company and not you as an individual. You can benefit from tax perks if you turnover a specific amount and enjoy a lower tax rate when employing those under the PAYE scheme. Again there are a number of legal obligations to be fulfilled so please tick off the following:

• File all your documents with Companies House namely your accounts and annual return. There are fiscal penalties if you don’t do this!

• Pay your taxes! Are you eligible for Corporation Tax?

• Make sure your company name, registered address and place of registration (England and Wales) are marked on your website.

And Finally…

Whatever structure you use make sure it suits you:

• Are you happy from a tax perspective?

• Is your paperwork in order?

• Are you happy with the way your peers view your business structure?

• And last but not least… is your business thriving profitably under the structure?

Aside from complying with the contract itself if you have questions about whether particular statutes apply to you or your supplier the best thing to do would be to use your free consultation.

What is IR35?

IR35 or intermediaries legislation was introduced in April 2000 the aim being to tax individuals who provide services through their own limited companies and partnerships. Essentially it targets contractors who might be avoiding paying the tax they should be paying by presenting themselves as self-employed. Contractors are technically self-employed and as such are not taxed in the same way as general employees; they take dividends from their company and pay less in NI contributions. The HMRC sees these people instead as disguised employees who should be taxed in the same way as a general employee. The legislation looks here to stay and it is vital for contractors to be aware of it and stay compliant to avoid financial penalties. Contractors need to stay within the all- important definition of ‘self-employed’ to beat the IR35 rules but this is not always as easy as it sounds. So first of all, consider whether IR35 applies to you.

Does it apply to me?

You need to consider whether the HMRC would consider you employed or self-employed which is not as straightforward as it sounds due to the ambiguity of HMRC’s terms. The HMRC will need to consider that you are genuinely in business under your own account. The Revenue will consider the relationship between you and your clients for each contract and assess whether your actual working practices reflect the contractual position. They are not swayed by job titles or descriptions but by the actual facts of each engagement. Even IR compliant contracts might not on their own save you from an IR35 inquiry – if the HMRC deem that you are in reality being treated like an employee then your contract could be worthless. The worst case scenario would be that you are required to make a deemed payment which basically comprises of all the tax and NI you would have paid, not to mention any interest and a possible penalty.

How do I make sure I am IR35 compliant?

The key is to ensure you have evidence, and continue to compile evidence, that you are outside the IR35 remit. Here's how:

Your Contracts

Review all your contracts to ensure that they demonstrate you are a genuine, independent business contracting for each individual company. Consider drafting a ‘confirmation of arrangements document’ which will act to back up your contract and show compliant working practices that tally up.

Right of Substitution

If you provide exclusive services for a business this may be harder to demonstrate by contract alone so consider your right of substitution. The thinking behind this is that to demonstrate your independence, you could send a suitable replacement for a day because as a contractor you provide a service. An employee by contrast provides his services personally. The right of substitution is a very strong test of self-employment.

Provision of Equipment

As a contractor you would be expected to have your own equipment. You are more likely to be deemed an employee if you are being provided with it by those you are working for.

How are you paid

As a contractor you would negotiate a rate for a service and invoice for your work. If the company is paying you weekly for example and bearing the cost of overheads you are slipping into employee territory.

Responsibility and Control

How much autonomy do you have? A genuine contractor will not be supervised or controlled by another business like an employee would be, for example with regard to set working hours or being moved from job to job.

Stand alone factors

Do you have your own company stationery? Do you advertise independently and observe your own policies and training requirements? Do you have your own professional indemnity, employer and public liability insurances? Are you separately VAT registered? All of these are good indicators that you are an independent contractor and not a disguised employee.

Once you have built your website, there are certain legal requirements you must abide by as well which should be stated explicitly on your website, usually in the footer of the page or in an ‘About’ section. There are four main documents you should be aware of which cover these obligations, though not all will necessarily apply:

1. Terms and Conditions of Website Use (T’s and C’s): This document gives details about you which you are legally required to provide (eg trading name, registered office, trading address, and VAT number), grants a licence to users to use your site subject to compliance with the T’s and C’s, sets out the limits of your responsibilities when people use your website, and clarifies that you own the website.

2. Acceptable Use: This document sets some rules for the users in the way that they are allowed to use your website – eg not introducing worms or viruses, not uploading illegal content, not breaching relevant laws, not breaching copyright.

3. Privacy Policy: You will need this if you are collecting personal data at any point, for example if you wanted to send out a newsletter and you had to collect the user’s email address to receive it. This will state what you collect, what you intend to do with the data, whether you are going to supply it to third parties (in which case consent is required), whether you consolidate it in anonymised aggregated data, how it is stored, how users can find out what information is held about them and object to its use etc.

4. Cookies: You will need this if you are utilising software which places a cookie on a user’s computer, so that you can identify them when they return to your site. A lot of websites will bundle these together in one or two documents, e.g. you will often find Website Terms and Conditions with the Acceptable Use Policy or the Cookies and Privacy Policy together.

Currently under the Data Protection Act 1998 (DPA) you have to comply with these 8 principles if you are collecting and using customer data. You must ensure it is:

• used fairly and lawfully

• used for limited, specifically stated purposes

• used in a way that is adequate, relevant and not excessive

• accurate

• kept for no longer than is absolutely necessary

• handled according to people’s data protection rights

• kept safe and secure

• not transferred outside the European Economic Area without adequate protection

For more information, we would recommend you visit the Government website