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I'm considering going freelance and after 20 odd years as a PAYE it is a daunting thought.
I currently work in sales so I would be effectively be looking to set up as a sole trader.
In principle the contract would involve taking a commission of the net profits whilst invoicing a monthly retainer for my services.
I'd have the usual business expenses of a travelling salesman so I understand this is all claimable during my tax assessment.
Has anyone done anything similar? Any advice on moving away from PAYE and any potential pitfalls or benefits I should be aware of?
Any comments welcome
Do you have a Rolodex full of contacts or are you going to be fed leads from whoever employs you?
It's been agreed the company would actively market in the regions I would be contracted to. Although the majority of the leads would come from industry knowledge and existing contacts.
Consider a limited company rather than a sole trader.
http://www.companiesmadesimple.com/sole-trader-v-limited-company.html
I have these discussions with the permanent employees of companies I work with.
I'm a freelance consultant, have been for over 20 years. I've been very lucky in that I have been able to work all over the world and I've never had a period of looking for work after a contract has ended. I'm a limited company and its still in my view the most efficient vehicle. But the gap / benefits of being a limited company are slowly being eroded, even recent changes to VAT have reduced our income further.
I always say that don't get too excited about the additional income you may appear to receive. You need to take into account things like holidays, illness, pension and tax. I wouldn't recommend any of the off-shore tax loopholes that some self employed people use. I'd always recommend just using a reputable accountant and paying your dues as the taxman can be scary! I did the off-shore loophole around the same time as Jimmy Carr, I did it for one year, got the threatening letters from HMRC and decided best not to fight the system. I know a fair few guys who ended up with very large fines and back payments to make. Anyway I digress....
I'd also recommend having at least 4 months worth of readily available savings that you can fall back on should you run into a lack of work/income. Rhetorical question, but what would be the point when you would need to decide if being self employed was or wasn't working for you? If the contract dries up, what happens then? Are there enough opportunities within your field to make it viable? The company you are going to be taking the cut from, are there other self employed personnel?
Also might sound daft, but if you can reduce your living costs that will help any period of inactivity income wise. I live without debt so I know that if I'm not earning I only have to pay the bills and food. No worries about credit cards or loans. This makes such a big difference, even if its just for my mental well being.
Also have a check to see if you would be captured by the IR35 rules. If you are only working for the one client you may have a tough time explaining why you are outside of IR35.
https://www.contractorcalculator.co.uk/what_is_ir35.aspx
Commission on the nett profit?
That leaves you in a very vulnerable position.
I'd change that to having your commission based on the gross turnover figure.
You have no input into what determines the nett profit, so you can get screwed by having unexpected costs or "adjustments" allocated against your sales.
BTW if you are generating the leads make sure you don't sign away the right to use them if you do work for a different company. Remember, you're freelance, not a beholden employee.