Now my ‘gap year’ is coming to an end and I need to start earning some money again I’m realising I have a lot of things to consider. Not least, how best to get paid and how best to pay tax. In the past I’ve had regular jobs and been paid on PAYE. This is easy: I turn up to work every day and at the end of the month my employer deposits a sum of money into my bank account having already deducted tax and NI. Now that I’m hoping to earn money from various sources and in different ways, it’s much more complicated.
I’m just starting teaching through an agency and they’ve offered me the options of PAYE or being paid through an umbrella company. If I choose PAYE I’ll get paid in the same way as before which seems nice and simple. However, I won’t be able to claim expenses (and supply teaching can involve long drives each day) and could get complicated when I start to earn money from other sources, particularly if it’s not taxed at source.
I’d not come across umbrella companies before (at least not in this sense – I think of them as the big multi-nationals that own a multitude of smaller companies), but they seem to be a kind of middle man. My pay would go to them and they would work out my tax and NI, pay it on my behalf, then give me the remainder of my pay. If I use an umbrella company, some of my expenses would be tax-deductible, but I would have to pay a fee to the company. As I’ll be (hopefully) earning money from different sources, I’m not sure this will be the best option for me as I’ll probably need more flexibility and advice than they can offer.
My other options are either to set up a limited company or operate as a sole-trader. At the moment, the sole-trader option (which basically means self-employed) seems the most suitable. A limited company would cost more to set up and has more complex (therefore more expensive) accounting procedures. On the other hand, setting myself up as a sole-trader seems quite straightforward and has simpler accounting procedures. Another advantage to being a sole-trader is that if I later want to switch to a limited company, this would be quite easy, whereas switching the other way round is more difficult.
Some time over the next few weeks I’m going to have to find myself an accountant and get some proper advice, but in the meantime my internet research has thrown up this infographic which helps makes sense of the options.