If earning as freelancer, is it better to be a Sole Trader or Limited Company?
As I understand it (please correct me if i'm wrong, i've looked at this before and i've been a sole trader briefly but I've never formed a LTD company) there are pros and cons to forming a limited company. Pros Cons Source Sole trader   If you start working for yourself, you’re classed as a self-employed sole trader - even if you’ve not yet told HM Revenue and Customs (HMRC). As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them. You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.You’re personally responsible for any losses your business makes. Tax responsibilities   You must: You’re personally responsible for any losses your business makes. This is one condition which you would need to have a look. If you do some shoddy work and your client wants to recover the losses they can come after your personal money or property. LLPs have the same probelm too. And you pay NI and income tax on all of your profits.  If you have a partner then both can take out the profits of a limited company, if both are directors. The tax hit will be less as compared to a single person.
You can find a lot of information at the HRMC website at http://hmrc.gov.uk.  If you don't want to work as an employee, you can register as self-employed (basically a one-man band), which is quite simple, you can start your own company, which is more work but can have tax advantages, or you can find umbrella companies which will officially employ you while in reality you are a freelancer and only do your billing through them.  Umbrella companies can be anywhere from totally legal to extremely dodgy. If they promise you that you pay only five percent tax on your income through ingenious tricks, that's only until the tax office finds out and they will make you pay.  Between self-employed and your own company, the big difference is whether you are actually working independently or not. If you work like an employee (take someone else's orders) and claim you are a company, the tax office doesn't like that. And if you pay very little taxes, they don't like that either. So self-employed is the safer choice but you will pay more taxes, close to what a normal employee would pay. Obviously you will have to pay tax on your income and NHS insurance.  Obviously you are required to tell the government (actually HMRC) about your income. Not doing so would be tax evasion and get you into deep trouble when you are caught.  I don't think you have to tell them the source of your income, but not telling them might look very suspicious and might get your accounts checked carefully. And unless you design a website for the mafia, why wouldn't you tell them? The bill payer will try to deduct your bill from their profits anyway, so it's no secret.  Most important to remember: When you send out a bill and receive payment, you'll have to pay tax on it. When self employed, as a rule of thumb put one third away into a savings account for your tax bill. Don't spend it all or you will find yourself in deep trouble when your taxes need paying. Plus put some more away for times when you can't find work. Firstly if you've formed a limited company you don't need to register as self-employed.  You're an employee and shareholder of the company and your taxes will be handled that way. Registering as self-employed is only necessary if you're operating as a sole trader (i.e. without a company). Secondly you absolutely do want to get set-up correctly with HMRC as soon as possible, whether you're a company or a sole trader.  Ignoring the legal question your worry about paying taxes when you have no income is groundless - if you're not making any money there won't be any tax to pay.  Furthermore it seems likely that the business is currently losing money.  Those losses, if correctly recorded, can be carried forward and offset against future profits so not only do you not have to pay tax now, but you can reduce the tax you pay later when the money does start rolling in. The major reason to start an LLC for side work is if you want the additional personal liability protection afforded by one.  If you're operating as a sole proprietor, you may be exposing yourself to liability: debts and judgments against your business can put your personal assets at risk! So, if you're intending to continue and grow your side work in the future, you ought to consider the LLC sooner than later. It's also an important legal decision and you should consider seeking a professional opinion. The Wall Street Journal has a brief guide titled How to Form an LLC.  Here are some notable excerpts: A limited liability company, or LLC,   is similar to a partnership but has   the legal protections of personal   assets that a corporation offers   without the burdensome formalities,   paperwork and fees.   [...]   Some states charge annual fees and   taxes that can diminish the economic   advantage of choosing to become an   LLC. Among LLC advantages:   pass-through taxation – meaning the   profits and losses “pass through” the   business to the individuals owning the   business who report this information   on their own personal tax returns. The   result can be paying less in taxes,   since profits are not taxed at both   the business level and the personal   level. Another plus: Owners aren’t   usually responsible for the company’s   debts and liabilities.   [...] Also check out onstartups.com's Startup 101: Should You Form An Inc. or An LLC? Here are some additional articles that discuss the advantages / disadvantages of forming an LLC: You will need to register as self-employed aka sole trader (that's the whole point: pay taxes on income that you're not getting as wages from an employer, who would arrange PAYE/NI contributions), or set up a limited company (in the last case you would have the option of either getting paid as wages or as dividends — which one is better is a complex issue which varies from year to year). You'll find lots of advice on the HMRC website. Use a limited company. Use the HMRC website for help on limited companies and get a good accountant for doing your taxes. Mixing your website income and personal income  may make you pay a higher tax rate. You can take out expenses from the limited company, which are tax deductible. But if you group it in personal income it wouldn't be tax deductible. In a personal capacity you are 100% liable if your business goes bust and you owe debt. But for a limited company you are only liable for what you own i.e %age of shares. You can take on an investor if your business booms and it is easier if you do it through a limited company rather than through a personal endeavour. I guess you are making quite a bit of assumptions without clarifying what you are trying to achieve. As a non-resident you cannot incorporate a sole proprietorship in Singapore. You have to be citizen. Alternatively you can register a company that has its own norms like minimum number of directors and some being Singapore national, etc. As you are paying dividend and not salary to yourself, the company will be required to pay taxes on gains. So all consulting money is gain as there is no expense. The balance when you transfer to Spain would potentially get taxed as income to you subject to DTAA "In simple terms, it is a business operation when it becomes a   profit-making enterprise. It is a grey area, but there is a difference between selling   occasional personal items on eBay and selling for profit. I would imagine the sort of considerations HM Revenue & Customs would   take into account are the size of your turnover, the extent to which   you are both buying and selling, and whether you are clearly   specialising in one particular commodity as opposed of disposing of   unwanted presents or clearing the loft. http://www.ebay.co.uk/gds/When-does-eBay-selling-become-taxable-/10000000004494855/g.html I don't believe that you selling your personal camera gear will be taxable, but as the link says, it is a grey area.  They also recommend to do this It's far better than having to deal with an investigation a few years   down the line. When it comes to completing your tax return, there is a section which   is headed ""other income"", and it is here where you will enter the net   earnings from the web business. ""Net"" here means your additional income, less all expenses associated   with it. If you are still worried I would always encourage people to take a cautious approach and discuss their position with HMRC via its helpline on 08454 915 4515." I'm hearing that I should maybe wait and see how things go at first as it is only a very small operation.   But if I moved into a side of the trade where I require staff, vehicles, and the likes then I would need to registed as a limited company. It is a bit of work and expense to form a LLC. In the long run it is the best approach because it shields your personal assets from business liability. In the short run, you can form as a sole proprietor and operate that way, and later convert to a LLC. "I don't think it really matters, my understanding is that as a sole trader there is no distinction between your personal and business tax affairs. The distinction between your personal and business account is mainly for your own personal benefit to make it easier to differentiate between ""wages"" and retained earnings. If you want to maintain this distinction with regard to tax then you need to somehow differentiate between tax paid on your ""wage"" and tax paid on retained earnings. You could then either make two payments, or pay from either and transfer the difference from the other. Either way, it's just a matter of perspective rather than something with a physical difference." "Here's a brief rundown:   1. You're not going to need a lot of capital or debt  2. You aren't in a high-liability or high (MM+) revenue industry unless you're making children's toys out of reclaimed dynamite or something  3. You are operating by yourself  The first fact rules out S or C corp. The second fact dings LLC, and the third one rules out a LLP or GP by default, although you can always convert later if you get a partner.   Benefits of sole proprietorship include very simple taxes! As a pass-through entity, the business's income is considered your own, and business expenses are tax deductible. You don't need separate tax returns for both. Additionally, if it's just your name, you might not even need a license depending on your state and municipality (figure this out). If you want a different name, you usually need to register ""doing business as [name]"" with your state or municipality. Lastly, you don't need to use business income in any special way, since you have no additional tax liability or general liability shield. With an LLC, there are a lot of rules and restrictions.   Let me know if you have any specific questions." You will be categorized as self employed. Will I have to register myself as a company or can go on unregistered and work You can register a company or can use an umbrella company or work as a sole trader. Remember as a sole trader you are legally responsible for you company's activities, an if a company sues you for your work he can take compensation from your personal assets. As a company your liability ends with the company, if your company is sued. Your personal assets are outside the purview of the lawsuit, but the court can attach that also but those are rare. This doesn't matter if you use an umbrella company. If you intend to be doing this for a short time(maybe a year or so), go for an umbrella company. Else register a company. will take you 5 minutes to form one. Depending on your earning you might need to register for VAT too. A comprehensive guide for self employed on HMRC. what would i need to be sound in uk and to be fit to work online as a freelancer? The same as above. Will it include paying any tax or paying any insurance Yes you have register for National Insurance(NI), before you can pay yourself a salary. The benefit of a company is you pay yourself a minimum salary, below the limit above which you have to contribute for NI, and take the rest as dividends. And pay no tax on it, till you don't exceed the limits. When the money comes in my account, will i be accountable to government of uk, to tell the source of income? If you are operating through a company, yes you would need to show your income(including source) and expenditure when you do your annual returns. What should i be knowing, like health insurance and things that are necessities in uk for a freelancer ? No health insurance as NHS exists. You can take out health insurance if you don't want to get into queues in NHS. It makes no difference for tax purposes. If you are 1099, you will pay the same amount of taxes as if you formed a corporation and then paid yourself (essentially you are doing this as a 1099 contractor, just not formally). Legally, I don't know the answer.  I would assume you have some legal protections by forming an LLC but practically I think this won't make any difference if you get sued. As an LLC you are required to have a separate bank account (so you can't have one account and mix personal and business finances together as you could if you were a sole trader) - but there's no requirement for it to be a business bank account.  However, the terms and conditions of most high street bank personal current accounts specifically exclude business banking, so unless you could find one that would allow it, you'd have to open a business bank account. From my experience it is much easier to start as a self-employed rather than a limited company. You almost have no paperwork and self assessment can be done online in as little as 20 minutes (from personal experience).  On the other hand having a limited company grants you a pile of papers to fill in from the start and almost certainly needing an accountant to do your taxes.  Regarding the income tax - if you have no profits, you will pay no tax. And that will leave you only with national insurance that is only about £70 for 3 month (better check with HMRC for the exact figure). So if you don't have a good enough reason to do a Ltd, start as a self-employed, you can always change to limited company later.