Hello ,
Today's newsletter is a bit legal and covers the requirements for Australia, the United Kingdom and America. In Australia, I am a registered company. While I use Wisepreneurs, my company is 13th Beach Marketing Services Pty Ltd, named after my local beach many years ago. It is used for all my client work.
Also, don't forget to check out the Wisepreneurs Podcasts; my most recent guest is Alison Grade, a long-time freelancer and author of The Freelance Bible.
Legal and Logistical Foundations for Starting a Business
Starting a freelance business requires more than just expertise in your field. There are several legal and logistical steps to take. This guide will walk you through some of the essential steps to establish your freelance business, from selecting a business structure to understanding tax obligations and obtaining necessary identifications.
Building on a Solid Foundation
Establishing a legal basis for your freelance business ensures compliance with regulations, protects personal assets, and sets the stage for smooth operations. This step must be revised to avoid legal complications and financial setbacks.
Choosing the Right Business Structure Your business structure affects your liability, tax obligations, and administrative requirements.
Sole Proprietorship
General Overview: Sole proprietorships, or sole traders, are the simplest, most common, and least expensive business structure. They are easy to set up and are prevalent in Australia, England, and the United States. Please check on your local regulations.
Australia: Sole proprietorships under your name are not registered with the government. Register the business name with the Australian Securities and Investments Commission (ASIC) if trading under a name other than your own. Some local councils may require a business license. In Australia, you can check the requirements here https://ablis.business.gov.au/
England: Sole proprietorships are not registered with the government. If trading under a different name, register with Companies House. A business license from the local council might also be necessary.
United States: Sole proprietorships aren’t federally registered. However, registering the business name with the state government and a local council business license might be needed.
Other Differences: Taxation: In Australia and the US, sole proprietors report business income on their tax returns. In England, they pay a separate business income tax.
Liability: Sole proprietors in all three countries face unlimited liability for business debts and obligations.
Business Name: In Australia and England, business name registration is mandatory if trading under a different name. It’s not required in the US but recommended for intellectual property protection.
LLC vs. Pty Ltd
An LLC (Limited Liability Company) is commonly used in the United States, while Pty Ltd (Proprietary Limited Company) is the equivalent in Australia and other parts of the world.
Both offer limited liability to their owners, ensuring that personal assets are protected if the business goes into debt. They are separate legal entities, meaning owners aren’t personally liable for business debts or obligations.
There are technical differences: LLCs require at least one member and must file an annual report with their state. In contrast, Pty Ltd can have one shareholder and must file an annual report with the Australian Securities and Investments Commission (ASIC).
Other Structures: There are other options like partnerships and corporations. However, they’re less common for individual freelancers. Your choice should factor in your specific needs and future growth plans.
Navigating the Tax Landscape Understanding taxes is vital to avoid penalties and make informed financial decisions.
England
Corporation Tax: The primary business tax is corporation tax. The 2023/24 tax year rate is 19% for profits under £50,000 and 25% for profits over £250,000. Other Taxes: Businesses may also incur value-added tax (VAT), payroll tax, and insurance premiums tax.
Australia
Income Tax: The primary business tax is income tax. Companies are taxed at 30%, but small businesses benefit from a reduced 25% rate. Other Taxes: Additional taxes include goods and services tax (GST), payroll tax, and fringe benefits tax.
United States
Federal Income Tax: The primary business tax is federal income tax, with corporations taxed at 21%. Other Taxes: Businesses might also face state income tax, payroll, and sales tax.
Other Obligations: Beyond taxes, businesses in all three countries must:
Register with the government. Obtain necessary licenses and permits. File tax returns and pay taxes punctually. Maintain accurate financial records. Adhere to employment laws and regulations.
This overview covers the business tax obligations in three countries: England, Australia, and the US.
Factors like business structure, size, and industry can influence these obligations. If you are considering starting a business in any of these countries, consult with your local business advisory service, it may be your local council or state government department, a lawyer or accountant to understand specific tax obligations.
Essential Business Identifications
England
Unique Taxpayer Reference (UTR): A 10-digit number assigned by HM Revenue and Customs (HMRC) for tax and National Insurance purposes.
Company Registration Number (CRN): An 8-digit number assigned to every company registered with Companies House, used for company-related purposes.
Australia
Australian Business Number (ABN): An 11-digit number the Australian Business Register (ABR) assigns for all business-related purposes.
Note that a director identification number (director ID) is required for all directors of companies, registered Australian bodies, foreign companies, and Aboriginal and Torres Strait Islander corporations in Australia.
United States
Employer Identification Number (EIN): A 9-digit number the Internal Revenue Service (IRS) assigns for all business-related purposes.
Other Identifications: Businesses might also need:
Goods and Services Tax (GST) registration number (Australia), sole proprietors in Australia must register for GST if their business turnover is $75,000 or more in 12 months.
Value-added tax (VAT) registration number (England) Sales tax permit (United States) Payroll tax registration number (all three countries)
The specific identifications your business requires depend on its structure, size, and industry. If uncertain, consult with your local business council, government agency, a lawyer or accountant.
Additional Considerations
Business Bank Account: Separate your personal and business finances. It simplifies bookkeeping and looks more professional to clients.
Contracts and Agreements: Always have clear contracts in place with clients. It outlines the scope of work, payment terms, and other essential details.
Setting up your freelance business with a solid legal and logistical foundation is not just a best practice—it’s essential. It ensures you operate within the law, protects your assets, and positions your business for success. If unsure about any step, consider consulting with professionals in legal or financial fields.
Cheers
Nigel Rawlins
https://wisepreneurs.com.au/
Find me on LinkedIn
https://www.linkedin.com/in/nigelrawlins/
Check out the Wisepreneurs Podcasts
https://www.wisepreneurs.au/
