Self employment confusion

[Tex]

The OP doesn't seem to have cleared up whether he is acting as a sole trader or not.

In the initial post the OP said he/she had registered with the local tax office as self-employed. Seems pretty cut and dried to me that the (not very large) risk falls entirely on the client.

[xoggoth]

IR35 does not apply to the self employed. However there have always been very similar rules, if you appear to be an employee they may try to tax you as one. Think the problem is more for the company that took you on.

[Tex]

IR35 does not apply to the self employed. However there have always been very similar rules, if you appear to be an employee they may try to tax you as one. Think the problem is more for the company that took you on.

Quite right, xoggoth. The true state for the OP is "if you appear to be an employee they will tax your client as if you were one." If the OP's client is happy to take the risk, there's no need for to lie awake at night worrying about it.

[Bunnyh]

Sorry, yes I am a sole trader. I invoice my client directly and my client pays me directly, there are no companies involved inbetween.

My winky wasn't meant to appear ominous! I have no intention of hiding anything from the tax office, that's why I posted my question, I want to make sure that I'm doing everything right.

I had a word with my client who says everything is above board and details have been checked by their accountant.

So far as the right to substitution, from my clients side I think it is for security reasons, the work I'm doing involves a lot of sensitive information so I can understand them not wanting me to give away passwords and information left, right and centre. Will the tax office take that as a legitimate reason?

My plan at the moment is to make sure I keep aside 25% of what I get paid for tax purposes (which doesn't take into account any deductibles or allowance) so I shouldn't find myself in a situation where April comes and I have a bill I can't pay. I'm not expecting to make vast sums of money from it so does this sound sensible?

Thanks for all the help guys. I've only ever worked as an employee before so I'm scared I'm not going to get all this stuff right!

[ASB]

Sorry, yes I am a sole trader. I invoice my client directly and my client pays me directly, there are no companies involved inbetween.

You are fine. If there is a status enquiry it's your client who gets stuffed if you fail. This might encourage them to answer the questions in the right way.

As for your dues, assume no expenses (i.e. your entire billings are profit) then tax and ni rates and some bumpf are here:-

http://www.hmrc.gov.uk/rates/it.htm
http://www.hmrc.gov.uk/rates/nic.htm
http://www.hmrc.gov.uk/pdfs/ir56.pdf

Your 25% is about right if you are making < 35k.

Tax: (profit - 5035) * 22% - 215 (for the 10% band). Over approx 38k there is an additional 18% tax.

NI: pay (profit - 5035) * 8% (class 4) + 110 pa (class 2)

Put 41% of anything over 38k profit and you won't be too far out.

I imagine theres a calculator on the web for you to put you estimated figures into.

[TheMonkey]

Yep here:

www.listentotaxman.com

[Denny]

Not true. A genuinely self employed person, doing a job that pay a normal salary level can make significant NI savings over the direct employment option.

tim

"The only difference is that you don't have to pay employers NI and you have more control if you're acting as a real business"

You missed that bit.

[Denny]

Sorry, yes I am a sole trader. I invoice my client directly and my client pays me directly, there are no companies involved inbetween.

My winky wasn't meant to appear ominous! I have no intention of hiding anything from the tax office, that's why I posted my question, I want to make sure that I'm doing everything right.

I had a word with my client who says everything is above board and details have been checked by their accountant.

So far as the right to substitution, from my clients side I think it is for security reasons, the work I'm doing involves a lot of sensitive information so I can understand them not wanting me to give away passwords and information left, right and centre. Will the tax office take that as a legitimate reason?

My plan at the moment is to make sure I keep aside 25% of what I get paid for tax purposes (which doesn't take into account any deductibles or allowance) so I shouldn't find myself in a situation where April comes and I have a bill I can't pay. I'm not expecting to make vast sums of money from it so does this sound sensible?

Thanks for all the help guys. I've only ever worked as an employee before so I'm scared I'm not going to get all this stuff right!

One thing you do need to remember about being a sole trader is this:

If this is your first year of trading then you won't have to pay your tax bill in full until 31st January 07 or even 08 depending on when you started the business, which you will declare on your self-assessment tax return. After that you will have to pay 'on account' - that means that for subsequent tax years you will have to pay your tax in one-third stages - based on your previous year's income - one third of it at around the time of your previous tax payment and then another in July. You only pay the balance by 31st January. The Revenue Tax Assessment form they send out at the beginning of the tax year will still say tax payable by 31st January (which of course misleads you into thinking you don't pay any of it until the deadline). Don't for god sake make the mistake of thinking you only have to wait until the end of the following tax year to pay the full amount, as you did in your first full year of trading. If you do you will be charged interest and surcharges on the late payments from the previous January and July.


You should also get your own accountant who can help you out here and file your tax return if you fancy shelling out for their services. It does save a bit of time.

[xoggoth]

Know very little about self-employment but have read about this pay on account thing denny mentions. However, I believe there is a way to avoid that if basing on previous year would give an excessive bill. Also, if the client did not pay what is due, have a hazy recollection they can try and get it from you. Very vague I know, but worth a few more checks, accountingweb is good.

[Denny]

Know very little about self-employment but have read about this pay on account thing denny mentions. However, I believe there is a way to avoid that if basing on previous year would give an excessive bill. Also, if the client did not pay what is due, have a hazy recollection they can try and get it from you. Very vague I know, but worth a few more checks, accountingweb is good.

Very true. If your next year's turnover is likely to be far lower that the previous fully paid up one then you can contact the Revenue and request you pay less = based on what you think you can afford. Usually they are sympathetic but you must be get their agreement first, not just pay what you can without such permission - otherwise you will be stung for the surcharges and interest on the difference you thought you should pay and what you should ultimately pay.