£300 per month only income - tax help

[ratcatcher2]

Hello if my wife's only income was to be 1 day per month being paid £300 for each day so overall £3,600 per year would she need to set up a limited company or can she just receive the money direct to her bank as it's such a low income?

[Eric Mc]

What does she do?

Is she self employed?

If self employed, then an annual gross income (before business costs) of £3,600 is way too small to justify or necessitate setting up a limited company.

[ratcatcher2]

Hello Thank you for the reply. She would be advising the client on auditing and general ISO topics.
Could they just pay her to her bank?
She is concerned about getting into trouble (!)

[NormalWisdom]

Very little trouble to be had at that level. £3.6 is below even income tax threshold. Would set-up as a sole-trader (though Eric is more qualified on this subject) and register to HMRC as such - Returns will result in zero taxation

[Eric Mc]

First of all, I would check that the status really is "self employed".

How many clients does she have?
How does she control and manage the work?
Is she legally liable for the work she does?
Does she need to take out her own professional insurance?

On the assumption that she can properly establish (if challenged) that she really is "in business on her own account", then she needs to notify HMRC that she now has income that needs to be returned under the Self Assessment tax system. HMRC will issue her with a notice to complete a Self Assessment tax return in due course (sometime after 5 April 2015). They will also issue her with a Self Assessment Tax Reference (usually referred to as a UTR number)

She will also need to register for Self Employed Class 2 NI. Because of the low level of income, she will be able to apply to defer payment of the Class 2 NI.

If her only income in the tax year is from this self employed activity, it is highly unlikely that she will have any tax or Class NI to pay. However, she will still need to make the return and, of course, if she is successful and picks up more clients, she may very well be in the taxable brackets before too long.

[ratcatcher2]

Thank you Eric that is extremely helpful of you.

She operates without instruction and with only this client. There are no plans to increase the volume or value of the work as she can manage fine in this income.

I will let her see your response and she will appreciate that very much.

[Eric Mc]

Having only one customer or client is not ideal if you are trying to show that you really are "self employed". I would endeavour to pick up at least two or three more clients - even if they only generate tiny levels of income.

[Hoofy]

http://www.hmrc.gov.uk/ir35/

[Eric Mc]

IR35 does not apply to "Self Employed" individuals. It is misleading to post a link to an area of HMRC legislation which does not apply to the OP's question.

IF the OP's missus did decide to set up as a limited company, THEN IR35 might be a relevant issue. But with turnover limited to £3,600 per annum, a limited company set-up would be overkill.

[ratcatcher2]

Thank you Eric really helpful and thank you the other person for the link even though probably not applicable.

[davepoth]

Just to add that the tax return isn't that scary really, once you've done a couple - especially if it's a simple situation like the one here. Make sure not to leave it until the last minute though.

[Pit Pony]

Eric Mc said:

IR35 does not apply to "Self Employed" individuals. It is misleading to post a link to an area of HMRC legislation which does not apply to the OP's question.

IF the OP's missus did decide to set up as a limited company, THEN IR35 might be a relevant issue. But with turnover limited to £3,600 per annum, a limited company set-up would be overkill.

Although I'd assume that the HMRC tests of disguised employee vs being in business would be applicable.