Simple questions re self-employed and tax/NI.
 

You get an agency job on a self employed basis that pays 12k a year. The company pays you weekly and you sort out your own tax/ NI.

1. Is it a case of taking the money then at the end of the tax year filling in your tax return and sending off a cheque for your tax and NI for that tax year.

2. Do you need an accountant of can you do it yourself.

3. If the tax free allowance is 10k, and your allowances ( ie getting to work) are 1k that leaves 1k of taxable income. Can I put 1k in my pension, therefore paying no income tax

4. What about NI. I have already paid enough for my state pension. Do you have to pay it?

Thanks.

If you struggle with the process , you could go through an umbrella company

The umbrella company charges 1k a year. As I see it, all they do is tell you of a few expenses and pay your tax on a weekly basis. Not much for 1k a year.

HMRC are very helpful you know despite how we mere mortals perceive them to be. http://www.hmrc.gov.uk/incometax/ways-to-pay.htm#2

As self employed.
You must pay class 2 NI of £2.70 a week if you earn over 5725 = £140.40
You must pay class 4 NI of 9% on earnings above £7755.
So on 12K you are looking at NI of £522.
On 12k minus 1K expenses you are looking at £423
Don't think of NI as anything other than a tax which is difficult to avoid paying and you will basically understand what is going on.
You could pay into a pension and zero your tax liabilities, but is it worth it? If you already have one set up, I guess that would make it easier. Not sure if pension payments lower your NI Class 4 liabilities, but if they did, it would save you £90 (9% of 1K)
I am pretty sure you could do this yourself easily enough, but maybe have a "chat" with an accountant first or at least hunt around the internet.
You pay your tax/NI in two installments (Jan and JLY 31st - I think) in arrears from the end of the previous financial year.
Hope this helps.

Thanks Craig.

Anyone else?

I was self employed for a few years before I retired and did the forms myself. My circumstances were pretty straightforward so keeping the books was easy as long as you do it as you go. Don't leave it to the end of the year, it will be a nightmare.
If your accounts are relatively straightforward, an accountant should only cost max £500 and they say that they will save you that in tax (because they know the system better that you).
Don't be put off either by submitting your end of year returns, they're not difficult.
Also, as someone said earlier, don't be afraid of the tax man. In my area, they run several different courses which explain what you need to do and how to do it.
The last year that I worked, I was winding down my work and did not earn big bucks. When it came to do my returns, I ended up paying 2p - yes 2p tax for the year!
You need to keep all your paperwork for 7 years (I think).
To start off, you will need to register on the HMC website. Good luck.

Terry

Thanks Terry.

Try U-tax. They sort mine for 75quid plus vat per year. You have to declare yourself self-employed with hmrc. You will receive a unique tax code and they will send you your invoices for ni payments for january and july. You won't need to pay anything other than you ni payments if you register half way through a tax year until the following one. So anything you earn now will be taxed and billed for Jan 31st 2015. If your bill is under 1000 you pay in full by Jan 31st if over 1000 it's split as two payments on Jan 31st and July 31st.

Sounds like a good deal. I spoke to my employment agency but they said part of the cotract is you have to go with the preferred umbrella company who charge £1k per year.

Did they say why? If you are being asked to be self-employed surely you cn pick your own accountant. They only need to be concerned with your invoices and any liability insurance you may require. What's the job doing?

FLT driver in a cold store. It is through an agency, and it is the same as being an employee. It is only self employed for tax purposes. Basically it allows them to not pay you any holidays and to circumvent the EU ruling that any agency workers, after 3 months, must be paid the same as full time employees.

You have no choice about who sorts out your accounts.

Its a stop gap job.......hopefully.

£1000pa for accounts is nothing other than a rip off. Especially as to all intents you'll have a single source of pay which will make your accounts very straight forward.

But of course, they've got you by the short and curlies, if you want the job........

I am surprised that HMRC will allow that agency to do it, a few years ago they started clamping down on people claiming to be self-employed whilst in effect, having a single employer.

Sounds like a stitch up to me. They are able to terminate your employment with zero notice and they avoid employer ni contributions. Shady as ****. If you are that desperate for work then so be it but that just sounds like a stitch up to me. If you are self-employed you can choose your own accountant, end of story. You will also need some form of public liability cover driving that machine. If you hit someone they wash their hands of it any liability rests with you. Look into it a bit further first.

WacPo is right, I though HMRC had clamped down on this.........

Shaun

I am pretty certain they were trying to Shaun.
I can only assume it is not such a straight forward matter, as it is still common practice in associate (piece-work) agreements for one thing.

The main break in this case being that no Employers NI is payable.
Since this kicks in at 7.7K @ 13.8% and has no upper threshold, the advantages are pretty obvious to say the least.
Maybe an accountant on here can explain what problem HMRC have encountered in trying to implement their declared policy in this area?

Ir35

http://www.contractoruk.com/ir35/

Do not do this without speaking to an accountant who deals with contractors.
In most cases its a complete waste of money.

Out of interest why is the company not paying you PAYE? There will be almost no tax to pay on £12k anyway. Their EC will be almost nothing.

I assume they want to dodge 28 days paid leave and possible future pension?

If you "work for them" IR35 is a real issue doing it as "self employed".

If you don't fall under IR35 then great, but if that's the case you are much better off invoicing them and getting them to pay your invoice to your LTD company that you set up. That way you wont pay any tax.

Speak to an accountant.

I agree - a Ltd Co would be the preferred setup.
Pay yourself a wage of £7680 (no tax or NI) leaving profit of £4320 on 12K income.
Knock off 1K costs leaving profit at £3320 for company.
Pay tax at corporation rate of 20% = £664.
Take the residual £2656 out of company as dividends on which no tax is payable - and hey presto - Job done. 12K earned, 1 K costs, £664 to HMRC and £10,336 in your (Missus ;-)) purse.
However, you need to set up the company - which I don't think is that expensive - http://www.companybug.co.uk/how-much...-company-cost/
Accountany (deductable) is obviously a bit more complex, but whilst there would be a steep learning curve, I am pretty sure you could manage to do this yourself - especially in the age of the internet.
Once you set your company up, you can always use it to pimp yourself out to other employment opportunities as well perhaps?
Tax would be due once a year on Jan 1st based on earnings for April 1st to Mar 31st of the previous year(s).

ps I am not an accountant, but I am fairly certain all of the above is correct. Obviously you would want to run this stuff by someone else before you pop down to companies house with your chequebook etc.

pps Also holiday entitlement is another area to take into your calculations.
With 5.6 weeks legal minimum entitlement out of 52 in the year, this comes to just under 11%. In all fairness, if someone were to offer me work not under PAYE, I would expect at least 20% loading to take this (and Employers NI etc) into consideration - and that is being generous IMO.
You are saving the guy a fair bit of admin and he can fire you any time he likes to boot (well, whatever is in your contract with him anyways).

The salary is actually 20k but I haven't earnt in the first 5 months of this year, hence the estimated yearly income of 12k.

Dividend income is still taxable

Registering as a LTD company seems a bit excessive when essentially you are a sole trader. You can claim back your mileage, uniform washing, gas/electric/phone bills etc if your home is your office, which technically it will be. I think I paid 457quid in tax on the 11500 self-employed portion of my income last year. It's a lot less of a faff and paperwork with going through companies house. You just ring HMRC declare you are self-employed. You are responsible for paying your own holiday too not the contractor giving you the work. You can work the full 365 days if you want. As self-employed that's on you.

AFAIK, you can take £2530 a month in dividends before tax needs paying.
Not an accountant though.