Starting out as an independent consultant in the UK is a straightforward process. Anyone can start a firm if they are eligible to work in Britain. The most basic options are free and require minimum paperwork. However, the decisions you make when starting your business will depend on what kind of independent consultancy you want to start, the amount of debt your new start up is likely to accrue and the turnover you expect. In addition, some business types require a permit or license from your local authority.
Establishing yourself as a Sole Trader (self-employed) is free and likely to be the best option for an independent consultant operating alone and not employing other people.
First, you must register with HMRC (HM Revenue Customs), the British tax authority. You are required to inform HMRC within three months of starting your business or risk a £100 fine (approx. £97). You are also required to pay Type Two National Insurance contribution each week.
Obviously, by operating as a sole trader you will need to keep tabs on your earnings and expenditure and you will be required to complete an annual tax return. As an independent consultant, you will be able to count some of your expenses and outgoings against your tax. Such expenses as travel, office supplies, computing equipment and even professional training can be claimed for. Engaging an accountant isn't required but can be a useful source of advice and expertise, especially when it comes to maximising your expense allowances.
Depending on how much profit you make, you will also be liable for further National Insurance contributions and also VAT (value added tax). The thresholds and allowances change annually and you should check the HMRC website for the latest information. Don't forget: if you're VAT registered you can claim back the VAT you pay to your suppliers.
If it's likely that your independent consultancy business will accrue a lot of debt or be at risk from litigation, you might choose to establish a Limited Company. This means that you, as a director, have limited liability. The debts and risks belong to the company itself, rather than the individuals involved.
As someone setting up as an independent consultant, it's likely that you won't be borrowing significant sums and might well start out part-time or working around your full-time job. It's up to you whether you establish a Limited Company in the first instance. Don't forget that you can move from Sole Trader to Limited Company as your business develops.
Establishing a Limited Company is more expensive, requires more paperwork and means you are required to publish annual accounts, as well as completing your own personal tax return. An accountant will be vital.
Some kinds of consultancy businesses require a permit from a local authority. Ensure that you have the professional qualifications and adequate clearance from the local Council before establishing your business.
There is a great deal of advice available to people thinking about starting up as an independent business consultant. Be sure to check out official advice from government sources, as well as expert advice from people who have been there and done that.
Tips and warnings
- There is a great deal of advice available to people thinking about starting up as an independent business consultant. Be sure to check out official advice from government sources, as well as expert advice from people who have been there and done that.