AD5804 - After graduation plan: starting my own business

The burocraticy side of our career is something where unfortunately we HAVE to bang our head into. Like it or lump it.

So, in order to make my life easier and less strussful after graduation I should make a solid plan about how to start my own business in photography.

I want to be a Documentary Photographer working freelance, ideally represented by one or more agencies. The benefits of freelancing are the freedom and flexibility to work for as many different types of client as I like and increasing my take home pay while being represented by an agency would give me more security.

As a freelance, my options are:

• Be a sole trader

• Setting up a limited-company

SOLE TRADER / SELF-EMPLOYED

Sole trader is the simplest and easiest way to start a business, the usual route most people take when just starting out.

Pros:

• No set up costs

• I can decide how, where and when you do my work

• I can keep all your business’s profits after I have paid tax on them

• I charge an agreed fixed price for my work

• Lower priced accountancy fees

• Less government departments to liaise with

• Submit a tax return just once a year

• I may benefit from regulations and government financing that support entrepreneurs.

• I can join organisations and societies, such as the British Institute of Professional Photography, and benefit from mentorship of more senior members.

• All of my photographic equipment and most supplies could be tax deductible, as would be my studio overhead and travel expenses

Cons:

• Higher personal risk, I am personally responsible for the company’s debts, my personal assets can be at risk

• I am responsible for finishing any unsatisfactory work in my own time

• Less opportunities for tax planning

• Retirement planning is my responsibility, with no employer to offer any plans and matching contributions, I would be entitled only to basic state pension

Set up as a sole trader

If you’re a sole trader, you run your own business as an individual and are self-employed.

You can keep all your business’s profits after you’ve paid tax on them. You’re personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.

My responsibilities

I will need to:

• keep records of my business’s sales and expenses

• send a Self Assessment tax return every year

• pay Income Tax on my profits and Class 2 and Class 4 National Insurance- use HMRC’s calculator to help myself budget for this

• VAT

• I must register for VAT if my turnover is over £85,000. I can register voluntarily if it suits my business, for example if I sell to other VAT-registered businesses and want to reclaim the VAT.

Naming my business

I can trade under my own name, or I can choose another name for my business. I don’t need to register my name.

I must include my name and business name (if I have one) on official paperwork, for example invoices and letters.

LIMITED COMPANY

A limited company is slightly more complicated, but necessary in some circumstances.

Pros:

• Some customers will only work with other limited companies

• You are separate from the company, so your personal possessions may not be at risk, unlike if you’re self employed

• Better tax planning opportunities

Cons:

• More costly starting up as you have to pay to form a Limited company

• Accountancy fees are generally more expensive

• Lot of paperwork: you have to file your accounts at Companies House each year, which will be on public record. You also have to file accounts, company tax and corporation tax calculations with HM Revenue and Customs every year

Setting up a limited company

You can run your business as a private limited company. This means the company:

• is legally separate from the people who run it

• has separate finances from your personal ones

• can keep any profits it makes after paying tax

To set up a private limited company you need to register with Companies House. This is known as ‘incorporation’.

You’ll need:

• a suitable company name

• an address for the company

• at least one director

• details of the company’s shares - you need at least one shareholder

• to check what your SIC code is - this identifies what your company does

You’ll also need:

• shareholders to agree to create the company and the written rules (known as ‘memorandum and articles of association’)

• details of people with significant control (PSC) over your company, for example anyone with more than 25% shares or voting rights

Once you have these details, you can register your company.

The most appropriate structure will depend on a number of factors, including the tax implications, the legal entity, ownership and liability, picking the wrong structure could see you paying more tax than is necessary, it is important to identify early on if the wrong structure is being used so a plan can be put in place to change to something more suitable.

Most freelancers choose to operate as a limited company because many potential clients and agencies will only do business with individuals who operate in this way. The downsides of the limited company are more rules and regulations, accountancy fees tend to be higher and the penalties for getting your paperwork wrong are greater. Plus you will have to pay corporation tax and you can't just withdraw money from the business without formally recording it as a salary, dividend or loan.

Your personal assets are protected against company debts, so in situations where the client passes on the responsibility and risk from a project to you – which is an everyday part of life as a freelance – personal property, such as your house, has a level of protection.

My plan

I believe that in my situation, the most suitable solution (at least in a first stage) would be starting my business as a sole trader and hire an accountant to support me through the entire process.

Ideally, I want to be a full-time documentary photographer, doing both commissioned work and personal projects.

I want to be supported by one or more agencies, I know that selling the shots that I take on my own wuold make a bigger income, but at the same time I would never be sure about actually have my work published and make money out of it. So I absolutely rather prefer to have a minor income but overall more financial security. Furthermore, if you are represented by an agency, they do much work for you that you would have otherwise to do completely on your own, like selling your pictures to magazines, organising exhibitions…

In order to protect my future income, I will own the copyright of my images and negotiate a license with my clients. For example, the first year they have the full license and I can use my work ONLY for self-promotion, the second year we can both use my work, afterwords any use of my pictures would command a royalty fee.

Anyway, it's important to understand that my decision isn't final. If in a future stage of my career it will be more beneficial to set-up a limited company, I will be still able to do it.