Self-employed question

[Archie_tect]

(Oops, that's January 2013. You should definitely have paid some National Insurance before then though!)

If you start out as a sole trader then it's fairly simple to keep a monthly check on your income and expenditure but you need to make sure it does get recorded as it's easy to put it off until it becomes too daunting!

You can pay Class 1A National Insurance monthly by Direct Debit- Class II is paid annually and depends on your turnover [used to remember all that stuff but it's all on the HMRC website]. Banks tend to not get upset if you operate a sole trader business from a personal bank account but if you decide to start off as a limited company [only really necessary if your annual profit exceeds the personal 40% tax limit] you'll need a trading account. You'll need an annual audit by an accountant if a limited company but it's a straightforward procedural thing rather being difficult.


You'll need to take out business insurance including public liability insurance and worth registering for VAT as you get all you VAT back on set-up costs. If you work from home you can offset expenses against profit for the part of the house used for your business.

This is all a bit over the top though if you are just looking at a bit of work now and again- all you have to do then is notify the HMRC about untaxed income and they'll send you a tax return for each year that you aren't just an employee.

 

[Wednesday]

If you start out as a sole trader then it's fairly simple to keep a monthly check on your income and expenditure but you need to make sure it does get recorded as it's easy to put it off until it becomes too daunting!

Well yeah, regardless of how you deal with HMRC you want to be good with your records from the start.

You can pay Class 1A National Insurance monthly by Direct Debit- Class II is paid annually and depends on your turnover [used to remember all that stuff but it's all on the HMRC website].

Class I is for employed people; you don't pay it on self-employment. Self employed people pay Class II at a fixed rate in January and July or by DD, and Class IV in January based on the previous year's income.

 

[Archie_tect]

Well yeah, regardless of how you deal with HMRC you want to be good with your records from the start.


Class I is for employed people; you don't pay it on self-employment. Self employed people pay Class II at a fixed rate in January and July or by DD, and Class IV in January based on the previous year's income.

Sorry Wednesday... I am a bit rusty and I employ people so got muddled- that's why I'd suggested to look at the HMRC site

[it's a long time since we set up!]...

 

[Wednesday]

I didn't mean "well yeah" in a dismissive way btw, it's a point worth making!

 

[fossyant]

I'll second/third/fourth the keep receipts, especially anything you've needed to get set up - e.g. say ink for the printer for training material, etc.etc.

My sister is a lawyer, but has trained in 'nails and beauty' as an evening course (for fun - girly stuff) but has done really well on the course. She's bought herself a mobile spray tan system, and stuff, and is doing OK out of friends for business... I've told her to keep receipts and speak to the inland revenue.
She is having a blast doing it !

PS she is a commercial property lawyer and things haven't been too great since the start of the 'problems' a few years ago.

 

[Flying Dodo]

If your income is going to be less than £5,315 pa, then you can apply for an exemption from paying Class 2 National Insurance. Although this could affect your right to claim other benefits and longer term, such an exemption would reduce your entitlement to State Pension.

More useful stuff about National Insurance for the self employed shown here.

 

[Shaun]

I'm both employed and self-employed. My employed salary is enough to use up all of my tax free pay, so all of my self-employed profit is taxable.

I pay NI on my salary, but also get a quarterly bill from NI at Newcastle for around £32 or so - not particularly expensive, so shouldn't impact on your SE earnings too much.

You will need to keep an account of all of your expenses and income and have an accountant submit your earnings/expenses to your local tax office on your behalf. My accountant usually charges £375 for this service. You can do your own submissions, but I prefer to use the accountant as he's more practised in assigning expenses and therefore saves me money, or at least limits what I pay. Your self-assessment return needs to be done by 31st January for the prior tax year ie. 6th April 2006 to 5th April 2007 should be submitted by 31st Jan 2008.

If you claim tax credits you'll need to estimate your self-employed income to start with - your accountant should be able to advise what figure to estimate based on your predicted self-employed income.

I'll 100th the keeping of receipts for absolutely everything - I'll say that again absolutely everything - you will be surprised how much milk, coffee, sugar, bin liners, tissue packs, toilet rolls, occasional washing up liquid, occasional dilute fruit juice, parking receipts, fuel, A4 copier paper, toner/inks, pens, notepads, envelopes, computer equipment, etc. etc. you will use ... it's best to claim for it and be knocked back by your accountant, than not claim at all - every little helps!!!

You don't need SAGE - you can use Cambridge ledger books from WHSmith/Staples - however having your accounts computerised does make it easier to manage for both you and your accountant. The cost of SAGE can be claimed as an expense ... lol !!!

Definitely tell the tax office - I'm not sure if it still applies, but you used to get 18 months to get established before having to submit your first return but that may have changed - it was 10+ years ago when I started.

It can seem a bit daunting to start with, but is fairly simple to manage once you're used to it.

Cheers,
Shaun

 

[ASC1951]

Definitely tell the tax office - I'm not sure if it still applies, but you used to get 18 months to get established before having to submit your first return but that may have changed - it was 10+ years ago when I started.

I think that has indeed changed. Self employment is now taxed on a tax year basis (i.e. 6/4 to 5/4) and you need to register with HMRC before the end of the tax year in which you first receive income.

Although it is huge, the HMRC website is one of the better government offerings. Here is where you start http://www.hmrc.gov.uk/sa/register.htm

 

[swee'pea99]

Should your turnover exceed the VAT threshold you would need to register for that much sooner[/url, you would also need to consider the impact of charging VAT on your fees.

Even if you don't have to, it can be well worth your while opting to - depending on the business you're in, of course. Checkout[url="http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm"] Flat Rate VAT. The way it works is you charge VAT at the standard rate, but you pay it on to the IR at a reduced rate, depending on what business you're in. The downside is that you can't claim back VAT that you pay on purchases. But you can still come out way ahead. In my game, it basically means I get an extra £100 on every £1000 I invoice.[/url]