Advice needed - Working for yourself & Employer
Discussion
I really hope that some of you may be able to provide some advice
My wife is currently on Maternity Leave and is due to return to work part-time in June. She has recently been asked by a friend to provide a service to their business. She is extremely keen to pursue this as it will mean she can do less days at her existing job/spend more time with our daughter/have less childcare costs.
The questions are therefore:
Will she be classed as a Sole Trader?
Will she have a duty to inform her existing Employer of the additional work and income?
What are the Tax/NI implicatons on this additional income - Is there any limit before you have to declare the income?
I'm sure that there will be a load of other things that we need to consider so any comments would be really appreciated.
Thanks
Chris
My wife is currently on Maternity Leave and is due to return to work part-time in June. She has recently been asked by a friend to provide a service to their business. She is extremely keen to pursue this as it will mean she can do less days at her existing job/spend more time with our daughter/have less childcare costs.
The questions are therefore:
Will she be classed as a Sole Trader?
Will she have a duty to inform her existing Employer of the additional work and income?
What are the Tax/NI implicatons on this additional income - Is there any limit before you have to declare the income?
I'm sure that there will be a load of other things that we need to consider so any comments would be really appreciated.
Thanks
Chris
r6blacky said:
I really hope that some of you may be able to provide some advice
My wife is currently on Maternity Leave and is due to return to work part-time in June. She has recently been asked by a friend to provide a service to their business. She is extremely keen to pursue this as it will mean she can do less days at her existing job/spend more time with our daughter/have less childcare costs.
The questions are therefore:
Will she be classed as a Sole Trader?
Will she have a duty to inform her existing Employer of the additional work and income?
What are the Tax/NI implicatons on this additional income - Is there any limit before you have to declare the income?
I'm sure that there will be a load of other things that we need to consider so any comments would be really appreciated.
Thanks
Chris
My wife is currently on Maternity Leave and is due to return to work part-time in June. She has recently been asked by a friend to provide a service to their business. She is extremely keen to pursue this as it will mean she can do less days at her existing job/spend more time with our daughter/have less childcare costs.
The questions are therefore:
Will she be classed as a Sole Trader?
Will she have a duty to inform her existing Employer of the additional work and income?
What are the Tax/NI implicatons on this additional income - Is there any limit before you have to declare the income?
I'm sure that there will be a load of other things that we need to consider so any comments would be really appreciated.
Thanks
Chris
I can answer the second half of the third one: you have to declare that you are working within a month or they will hit you with an immediate fine of £100. Some people who only earn about £1000-2000 a year from me didn't tell HMRC until the end of the tax year thinking that was OK, and got fined. I now hand them a letter when they start doinmg work for me telling them they must do it immediately. All additional income they pay tax and NI on at their prevailing rate (ie 22% or 40%) but also get to offset their costs (travel, IT, stationery, heat and light etc).
I'm awake now 
Leftie - the time limit for notifying the Revenue of your Self Employment status is actually THREE months from commencement of trading.
Regarding self-employment status, you must always remember that the Revenue considers that there is no element of "choice" in this. Neither the individual nor the person or business paying them can opt between treating the individual as an employee or Self Employed. The Revenue will say that the status is a matter of fact. In other words, the terms and conditions under which the individual's services are "hired" will SHOW what the correct status is. In some cases, establishing the fact that a person is genuinely Self Employed is straightforward -
they have multiple customers
they buy and sell goods
they have their own staff
they can use their staff or other Self Employed individuals to carry out the jobs they might do themselves (referred to as substitution)
they have their own business premises
they use their own equipment and tools
they do not receive holidays or holiday pay or sick pay from the people they work for
they are not included in any employee pension/savings/social schemes
they are registered for VAT
they need to carry some sort of worl related insurances
The problems arise when the individual only supplies labour and behaves, in most respects, very like the "employees" who work for the same "employer".
The good news is that the responsibility for paying employees correctly lies almost completely with the employer, and it is they who will incurr all the additional taxes and National Insurance liabilities arising if a "self employed" individual is reclassified by the Revenue as an "employee". It's the Employer's risk, not the Employees.
On the assumption that Self Employed status is OK, the following steps need to be taken:
- notify the Revenue within three months of commencement
- let them know if the Self Employed income is going to exceed the NI lower earnings threshold in the tax year (2007/08 - £4,635). If it is below the threshold, the Self Employed individual will be exempted from having to pay the Self Employed Class 2 National Insurance contributions. If above this limit, this NI needs to be paid on monthly or quarterly basis. For 2007/08 it equates to £2.20 per week.
- once notified, the Revenue will allocate the individual a Uniform Tax Reference and will, eventually, issue a Self Assessment tax return for completion. Anyone starting in Self Employment now will not receive their first Self Assessment tax return for completion until this time next year
On your other points - there is no "legal" requirement for her to notify her current employer. However, there may be a requirement in her employment contract which states that this needs to be done. This is understandable from her employer's point of view as the employer would not want her to create a conflict of interest between her employment work and her Self Employed work. Nor would he want her working for a competitor or even a business HIS] business does business with.
Regarding tax, unlike NI, any income deriving from the Self Employment activity will be taxable. As I said earlier, NI is only charged if the Self Employed income exceeds the Self Employed NI earnings threshold. On the other hand, TAX is payable once your personal tax allowance for the year is exceeded. As she will already exceed this allowance amount (£5,225) through her employment, all other income received from all other sources will be fully taxable.
Leftie - the time limit for notifying the Revenue of your Self Employment status is actually THREE months from commencement of trading.
Regarding self-employment status, you must always remember that the Revenue considers that there is no element of "choice" in this. Neither the individual nor the person or business paying them can opt between treating the individual as an employee or Self Employed. The Revenue will say that the status is a matter of fact. In other words, the terms and conditions under which the individual's services are "hired" will SHOW what the correct status is. In some cases, establishing the fact that a person is genuinely Self Employed is straightforward -
they have multiple customers
they buy and sell goods
they have their own staff
they can use their staff or other Self Employed individuals to carry out the jobs they might do themselves (referred to as substitution)
they have their own business premises
they use their own equipment and tools
they do not receive holidays or holiday pay or sick pay from the people they work for
they are not included in any employee pension/savings/social schemes
they are registered for VAT
they need to carry some sort of worl related insurances
The problems arise when the individual only supplies labour and behaves, in most respects, very like the "employees" who work for the same "employer".
The good news is that the responsibility for paying employees correctly lies almost completely with the employer, and it is they who will incurr all the additional taxes and National Insurance liabilities arising if a "self employed" individual is reclassified by the Revenue as an "employee". It's the Employer's risk, not the Employees.
On the assumption that Self Employed status is OK, the following steps need to be taken:
- notify the Revenue within three months of commencement
- let them know if the Self Employed income is going to exceed the NI lower earnings threshold in the tax year (2007/08 - £4,635). If it is below the threshold, the Self Employed individual will be exempted from having to pay the Self Employed Class 2 National Insurance contributions. If above this limit, this NI needs to be paid on monthly or quarterly basis. For 2007/08 it equates to £2.20 per week.
- once notified, the Revenue will allocate the individual a Uniform Tax Reference and will, eventually, issue a Self Assessment tax return for completion. Anyone starting in Self Employment now will not receive their first Self Assessment tax return for completion until this time next year
On your other points - there is no "legal" requirement for her to notify her current employer. However, there may be a requirement in her employment contract which states that this needs to be done. This is understandable from her employer's point of view as the employer would not want her to create a conflict of interest between her employment work and her Self Employed work. Nor would he want her working for a competitor or even a business HIS] business does business with.
Regarding tax, unlike NI, any income deriving from the Self Employment activity will be taxable. As I said earlier, NI is only charged if the Self Employed income exceeds the Self Employed NI earnings threshold. On the other hand, TAX is payable once your personal tax allowance for the year is exceeded. As she will already exceed this allowance amount (£5,225) through her employment, all other income received from all other sources will be fully taxable.
Edited by Eric Mc on Wednesday 18th April 09:04
Eric Mc said:
I'm awake now
Leftie - the time limit for notifying the Revenue of your Self Employment status is actually THREE months from commencement of trading.
Leftie - the time limit for notifying the Revenue of your Self Employment status is actually THREE months from commencement of trading.
Edited by Eric Mc on Wednesday 18th April 09:04
Thanks Eric, I will amend my cover letter accordingly. From what I have seen they tend to panic and do it immediately or a few don't do it at all and run the risk.
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