Self-employed - is it really as simple as it sounds

[andy665]

Been offered four months work on a self-employed basis, only part-time but its better than nothing.

I will be paid a fixed amount per month plus a fixed amount to cover expenses - if there is a surplus or shortfall then I'll either gain or lose (I should win by my calculations). Expenses are likely to be 90% fuel with the occassional lunch, a bit of stationery etc

Contacted Inland Revenue and they said all I need to do is keep a mileage log, receipts for expenses and set aside approx. 20% of the income to pay my tax bill next year.

National Insurance is set at £2.40 per week

As I was a 40% taxpayer until I was made redundant in Dec 2008 I reckon I'm due a tax rebate anyway so I'm sure setting aside 20% of my income will be sufficient.

My only concern is that it all seems to be too easy?

[Eric Mc]

I'll mention one word - "Status",.

"Self Employed" really means "trading". Are you really trading as a business in this new capacity. Will your acttivity exhibit the badges of trade?

Being part time on its own is not an indicator of whether you are Self Employed or not. There are plenty of part time employees in the workplace.

Edited by Eric Mc on Thursday 27th August 17:51

[jimmyb]

Andy it really is that easy the only real pita is the inland revenue themselves in that they are so disorganised and inept that you would be well off getting an accountant on a fixed fee to deal with your tax returns. If you could do it through an umbrella style company where your pay goes through them and they deduct and pay 18% (could be 20% now not certain) of your taxes for you. You then merely need to keep a bit aside for the difference and end of year give your expenses to your accountant and he will tell you whether you owe ir or they owe you.

[Eric Mc]

jimmyb said:

Andy it really is that easy the only real pita is the inland revenue themselves in that they are so disorganised and inept that you would be well off getting an accountant on a fixed fee to deal with your tax returns. If you could do it through an umbrella style company where your pay goes through them and they deduct and pay 18% (could be 20% now not certain) of your taxes for you. You then merely need to keep a bit aside for the difference and end of year give your expenses to your accountant and he will tell you whether you owe ir or they owe you.

Working for an "Umbrella" means you are a mere employee (and definitely NOT "Self Employed") and them umbrella should be deducting normal PAYE and NI. If the deductions they make are LESS than the normal PAYE/NI, then they are probably one of those off-shore trust efforts which are decidely marginal from a legal point of view.

[jimmyb]

Eric Mc said:

jimmyb said:

Andy it really is that easy the only real pita is the inland revenue themselves in that they are so disorganised and inept that you would be well off getting an accountant on a fixed fee to deal with your tax returns. If you could do it through an umbrella style company where your pay goes through them and they deduct and pay 18% (could be 20% now not certain) of your taxes for you. You then merely need to keep a bit aside for the difference and end of year give your expenses to your accountant and he will tell you whether you owe ir or they owe you.

Working for an "Umbrella" means you are a mere employee (and definitely NOT "Self Employed") and them umbrella should be deducting normal PAYE and NI. If the deductions they make are LESS than the normal PAYE/NI, then they are probably one of those off-shore trust efforts which are decidely marginal from a legal point of view.

Not really depends who you use.Some/all will insist on paying the basic rate of tax at 18-20% so that goes to ir before you get paid every single time the only thing really optioned is the ni payments which you can opt in or out of dep on mood which if you opt out you are obliged to pay i believe on handing in your self assesment forms.
You can of course choose to use on of the really dodgy companies who will pay you in full with no deductions but then be it on your head. I know of many guys who used companies like that and never paid tax or ins and never heard of any of them being investigated by ir.In fact once did a bit of work for a company which paid all its hundreds of contractors through a company like that and none of them were ever caught or even investigated from what i heard and they had been doing it for quite some time.

At the end of the day its a mixed bag personally would use an umbrella who will deduct your taxes for you and you simply need to pay the difference on tax return between expenses and monies owed and ni contributions. Tax man if he really wants to can make a fuss but provided everything is paid as it would be if done through "proper"/authorised methods they have no claim or way to give you grief really It's not like they can try take you to court to claim money you have already paid them.

[jimmyb]

Also this is all dependant on IR being able to read write count speak english or even tie their own shoelaces.

[andy665]

As its only like to be for a maximum of four months I want to keep everything as simple and low cost as possible

[Eric Mc]

On what grounds do umbrellas decide themselves what rate of tax to deduct from one of their "staff's" salaries.

That is not the way UK tax works.

If they are doing that, they are breaching UK tax regulations.

[jimmyb]

They deduct the basic rate of tax which is iirc something like 18% though may now be 20. However some allow the contractor to choose whether they deduct the basic or simply pass on the full payment to the contractor with the onus being on the contractor to pay his taxes in full at the end of the tax year.

[Eric Mc]

jimmyb said:

They deduct the basic rate of tax which is iirc something like 18% though may now be 20. However some allow the contractor to choose whether they deduct the basic or simply pass on the full payment to the contractor with the onus being on the contractor to pay his taxes in full at the end of the tax year.

Why do they think that they can operate tax this way?

An employer will deduct Basic Rate tax (20%) on an employee until they receive from HM Revenue and Customs the correct Tax Coding to apply to that employee.
The employer is legally obliged to notify the Revenue that an employee has commenced employment with them. They are not allowed to "leave matters to the employee".
They also MUST deduct Class 1 NI on an employee's salary if the employee's salary exceeds the Lower Earnings Limit.

There is no legal mechanism whereby they can only deduct Basic Rate tax for an indefinite period - and ignore NI completely - which is what you seem to be indicating these employers do.

PAYE regulations do not offer choices to employers. They must comply with a pretty strict set of rules as to how they handle their staff.

[jimmyb]

Eric Mc said:

jimmyb said:

They deduct the basic rate of tax which is iirc something like 18% though may now be 20. However some allow the contractor to choose whether they deduct the basic or simply pass on the full payment to the contractor with the onus being on the contractor to pay his taxes in full at the end of the tax year.

Why do they think that they can operate tax this way?

An employer will deduct Basic Rate tax (20%) on an employee until they receive from HM Revenue and Customs the correct Tax Coding to apply to that employee.
The employer is legally obliged to notify the Revenue that an employee has commenced employment with them. They are not allowed to "leave matters to the employee".
They also MUST deduct Class 1 NI on an employee's salary if the employee's salary exceeds the Lower Earnings Limit.

There is no legal mechanism whereby they can only deduct Basic Rate tax for an indefinite period - and ignore NI completely - which is what you seem to be indicating these employers do.

PAYE regulations do not offer choices to employers. They must comply with a pretty strict set of rules as to how they handle their staff.

Im talking self employed not paye. If on a long term contract to a company as self employed through an umbrella the umbrella will deduct the basic which is around 18-20% then its up to the contractor him or herself to pay any difference above the 20% on completion of his self assesment. However certain of the umbrellas will merely process your pay slip so you could in theory slip the net and not pay any tax or ni contributions but they make it very clear the onus is on you to pay it.

[TimCrighton]

I'm using an umbrella for a contract at the moment - have a look at www.umbrellafreedom.co.uk. If you think you might want to go for it let me know and I'll get the guy there to give you a call

I've found it quite good so far. Bit frustrating having to fill in your timesheets everyweek but its a small price to pay. Costs £15 a week but means you don't have to do any tax returns/NI calcs etc so its pretty simple

[Tyre Smoke]

andy665 said:

As its only like to be for a maximum of four months I want to keep everything as simple and low cost as possible

If you are still reading this after the substantial hijack.....

Keep a simple excel sheet with your income on one side and your expenses on the other. Keep all receipts for your expenses. Number them if you want reference them against the spreadsheet. Get on to the National Insurance people (Google them) and tell them you want to pay class 2 payments. Come April 5th deduct expenses total from income total and save 28% of what's left to give to the Chancellor by the following January. That's 20% income tax and 8% stealth tax, I mean class 4 NI.

No need to over complicate things.