When one of the US’s Founding Fathers, Benjamin Franklin, stated: “In this world nothing can be said to be certain, except death and taxes”, he was coining a truism that has echoed throughout the centuries and will probably remain constant until the end of society as we know it. The vast majority of those in business, either as employees or self-employed, have little detailed understanding of how the tax system operates.

The complex rules that apply to every area of working life are difficult enough for experienced financial experts to deal with, so for the mere mortal there are hazards that are hard to circumnavigate. As there are usually changes to the rules and regulations of the tax system every year, the complexity simply increases.

So, what should those working in the tech sector do?

Getting advice

The tax authorities have been tightening up the regulations over the last few years to prevent workers from claiming they are self-employed when in fact they are effectively working for one employer and could have become an employee. The tech sector has many small businesses and self-employed workers that are often given short-term contracts to work on projects. A problem may arise if one short-term project is immediately followed by another with the same company. The tax authorities are liable to deem this as effectively fulltime employment and calculate what tax and National Insurance should have been paid under an employee contract. This is likely to be more than tax and NIC paid as a self-employed tech sector worker.

The key thing is to get professional advice in the first instance. Anyone running a small business, planning a start-up or contracting out services as self-employed needs to fully understand their liabilities and responsibilities. Getting it wrong often leads to investigations and potentially penalties.

Accountants

Accountants are often the first port of call, and once they understand the nature of the business will be able to give useful advice as well as taking care of business or sole trader accounts. This has a cost, naturally, but it frees up time for the tech worker or business to concentrate on their core activities: selling and carrying out their services. Depending on the nature of the business they may be able to help with decisions on what is the best structure for that business. For some a limited company that has potential to grow but limits personal risk may be attractive, for others a partnership or sole trader modus operandi may be more appropriate.

Umbrella companies

Many contractors now use the services of an umbrella company to look after their tax and employment affairs, and this can take a lot of the administrative pressure off. An umbrella company acts as an employer for those in the tech and other industries who may have multiple small contracts (for example, for maintaining hardware and software onsite or updating websites regularly. The company operates PAYE, looks after the needs of the various employers, and can help with claiming work-related expenses.

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