The Shift: Issue #26

Sole trader vs limited company or umbrella – what’s best? IR35 changes; Parliamentary debate on the future of work; Seth Godin on creative practice.

I had to set up a limited company last year for a new contract role via an agency. My tax status only came up after I’d done the interview, a written test, and been offered the role. My agent said, “oh, we don’t work with sole traders.”
It was a chunky project – a six-month contract to write a book for a big brand and they were happy to pay my day rate, so I went for it. I set up a limited company via Companies House – fast, no-nonsense, and costs £12. I had to sort out business insurance (took much longer), an accountant, and a business bank account with a UK address for IBAN (EUR) payments.
A bit of hassle for one contract but that was the deal. And I wanted the job, so I did it but not happily. I’ve been a sole trader since I started freelancing back in 2002 and was gifted a limited company once (we broke up, I wasn’t ready; I have commitment issues). I don’t think individuals should operate as companies unless you’re employing someone. Nor should agencies and companies dictate your set up. These roles are often last-minute so you’re under pressure to act quickly or someone else will get the gig.
Anyway, the project went well – a good challenge and I learned a lot. Great to work with a team and have a physical product at the end of it. The contract was due to be extended in February to finish the editing, but this fell through with lockdown. Things have been pretty quiet on the contracting front since. Companies have cut budgets this year, which tends to hit freelancers first, and bigger clients are preparing for IR35 changes next April which will bring private companies into line with the public sector. Many have now banned the use of limited company contractors which is the way most contractors have operated up to now.

Is this the end of PSC contractors?

I don’t think so, but things are changing and we’ll have to operate in a different way. Contracting has had a bad name because of links to tax avoidance. But most of the time people choose to go limited so they can work temporarily for companies – there are often more opportunities for short-term projects with better rates. In my case, I had no choice as this seems to be how most advertising and PR agencies operate.
Last week I was invited to pitch for a short-term contract with the same ad agency and was told they can’t work with PSC’s/ltds as the role was ‘inside IR35’. I would have to use their umbrella company. UC’s act as an intermediary between contractors, employment agency and the end client. They deal with the admin, tax and payroll; you’re an employee of the umbrella company.

The Umbrella route

It seems like a good balance between having the independence of the contractor and the convenience of being an employee. It used to be more expensive than running your own limited company because of admin overheads, so didn’t offer the same tax advantages. But with the introduction of IR35 tax advantages have been reduced, so we’re now seeing an explosion of online umbrellas. PAYE is the least tax beneficial option to you as a contractor as you pay full tax/NI on your earnings and you can’t claim business expenses to reduce your costs.  
So, it looks like this is the way things are going in 2021 with agencies at least. What to do with my limited company? I had my best year ever and it seems a shame to dissolve it so soon. I could make it dormant but there are still running costs and admin. I could keep it going and see how things go – with off-payroll working you can still operate via a limited company for an ‘inside IR35’ role as long as the agency allows it, and they deduct tax and NI but I can’t see the point if more agencies and companies will be taking the brolly route.
My accountant said,
The vast majority of clients end up using an umbrella company – the tax is the same and there is not the hassle/expense of running a limited company. More and more contracts are going to be caught by these new rules when they roll out fully in April.
So, I’ve decided to go back to be a sole trader and stop stressing about it. This should bring my operating costs down and I can do my accounts myself if I need to. I’m spending more time on the admin side of the business than doing creative work and pitching for new business – and I hate number crunching!
There’s no easy answer. I don’t want to block new opportunities or more lucrative work that comes with being incorporated, but I don’t want the costs of running a company if I don’t have regular contracts. I’ve seen 30k and 50K quoted as a benchmark for going limited which isn’t looking likely this year.
If you’re offered a role that’s ‘inside IR35’ – a review of the impact of new rules of IR35 in the public sector showed 25% of contractors were able to increase their day rate – so if you want to preserve your income, look to increase your day rate by 20% if you can. More advice on Contractor UK.

Record numbers of companies created

This year should see record numbers of companies created, with an extra 84,758 businesses setting up in 2020 compared with 2019, according to Small Business UK. Mostly for e-commerce businesses and retailers of medical goods (no surprise there, we’ll soon have a mountain of masks in landfill). IT contracting was 25% down. It’s the highest growth on record, but the reality is it’s a result of redundancies with Covid-19 and won’t necessarily encourage growth as sole directors are less likely to employ others. It seems bonkers to me given the recession, IR35 changes and the lack of financial support available to sole directors this year. But still, we have an entrepreneurial spirit :-)

IR35-friendly LinkedIn profiles

Does using the ‘Open to Work’ option on LinkedIn make you look desperate? I had to chuckle when I read Matt Craven’s Q&A. I had my badge on for a few days then took it off again. It’s overkill and makes me look like I’m on special offer in the supermarket. I’m on LinkedIn because I’m looking for new opportunities. Not everyone has to see your green helper badge - you can set it to ‘recruiters only’.
Speaking of IR35, how does your social profile reflect your status? It’s something to consider as you never know who’s looking at your profile. There are two options on LinkedIn: ‘Looking for a new job’ and ‘offering services to a client’. To be IR35 compliant you need to choose the latter. But does that mean your profile won’t come up if recruiters are only searching on the first? Matt was wondering if you can select both options to maximise your chances. I checked and yes, you can.

The Future of Work parliamentary debate

Excellent debate in parliament this week on the future of work motioned by MP Kirsten Oswald with Jon Cruddas and responses from DWP. A rousing speech from Kirsten to kick things off.
I support an Accountability for Algorithms Act, and we need a Work 5.0 strategy now to address the challenges we face.
They discussed a broad range of issues. How Covid has disrupted the labour market - one in three workers is looking for a new job. Recognising the labour market is fluid, adaptable to the changing nature of employment, and the importance of education, skillsets and agile working. How automation increases productivity, progress and wages. Embracing change, tech development and recognising how far we’ve come since the days of manual labour. 6% of jobs in 2014 didn’t exist in 1990. The pros and cons of Universal Basic Income. How we can raise the status of care work.
A focus on mental health and wellbeing in the workplace – giving remote workers the right to disconnect. Can we move to a four-day week - and still ensure people have enough to live on? Looking at what other countries are doing.
The importance of trade unions and how businesses, government and unions need to work together to create change:
Whatever the future of work looks like, trade unionism must be at the heart of it if we are to see well-paid, highly skilled and secure jobs not just for ourselves, but for our children and our children’s children.
The Union Learning Fund (under threat) was mentioned five times. This would mean the end of FEU Training project and the training it provides to freelancers. The TUC is trying to get the government to reverse this decision - you can sign the petition here.
DWP’s priority over the next decade is reskilling - talk of a National Skills Fund, community, and continuing to invest in work coaches.
You can watch the debate here. #APPGFutureOfWork

📖 Business Book of The Week

I’m trying to read a book a week. Seth Godin’s latest, The Practice: Shipping Creative Work, was kindly sent to me by Isabelle at Journey Further Book Club. They host Clarity at Speed, bitesize talks from the sharpest minds in business, startups and tech. Seth spoke at this week’s event.

In a nutshell

A reminder that creativity is a choice. Just show up and do the work (the practice) and divorce your work from the outcome. Let nature handle that.
The wrong he wants to right:
People have been indoctrinated by an industrial system and culture that wants them to fit in, that reinforces racial bias and limits our self-belief - we don’t trust ourselves and instead rely on the system. The Practice is a sharp point on that. We don’t have to accept the status quo if it’s not getting us where we need to go.
We are surrounded by people who are victims of social media, we think we need to be famous rather than important, to be liked, but there’s a different path available.
You are creative because you ship the work. Being outcome obsessed - the hack, the hustle, likes, applause, money, making this list or that list - is a trap. They aren’t the point - the point is to do the best work you can and learn from what happens next. We’re privileged - we get to show up and do something that’s not been done before. Can we embrace the feeling that hits before we ship the work and still send it?
Don’t edit too much or you’ll sand off all the edges.
Shipping creative work - if it doesn’t ship, it doesn’t count. This isn’t your hobby, it’s about creative work. It’s hard, it takes emotional labour. We’re not allowed to whine about make-believe writer’s block - we have to simply show up and do the work.
All you can do is start where you are and start now.
There is no passion and no muse - the muse is made up. We just do the work.
On imposter syndrome:
It’s a good thing you have it as it means you’re on to something.
On marketing:
Serve your existing audience rather than striving for the new, the next shiny thing.
On mindset:
Creative work is a generous act making the world better for someone. You have a cultural obligation to get your work out there so be generous with your ideas and don’t hold yourself back. Commit to it and enjoy the journey.
Seth still blogs every day and prefers this to writing books. He seems to be proudest of his book Linchpin, which he says transformed his life and thinking.

Thanks for reading 🙏

👋 Hi, I'm Nicci - a journalist and writer based in East Sussex, UK. I write The Shift, a newsletter on work culture, creativity + tech trends.⚡️ If you like this and want to read more, please consider becoming a paid subscriber here. Or if you prefer, you can treat me to a coffee here. Find me online @niccitalbot.