Self-employment question

[steve1]

Hopefully this is in the right section.
I've been doing a bit of casual work on a "cash in the hand" basis, only 2or 3 days a week, but now things have taken off and there's a lot more work coming in, and as such I've been asked to go self employed and work more hours.
I understand why I've been asked, but need to understand how things work before committing to anything.
Will they stop tax and NI from my wages and then I fil out a self ass at the end of the tax year.
Might also add that I took early retirement and draw a pension, but needed something to keep the grey matter going, hence the casual work.
If it does happen I'll probably go down the accountant route just to make sure I'm doing things properly with regards to tax matters etc. but would appreciate some insight to the above question.
Thanx.

[Jasandjules]

I suspect you would need to send them official invoices which they will pay. You use these invoices to determine your self assessment tax return.

[marshalla]

Sounds like you are already self-employed, so you are responsible for your own tax, NI, pension, holidays etc.

You should probably spend the rest of the weekend working your way through this : http://www.hmrc.gov.uk/selfemployed/

[schmunk]

What's the work?

Who provides the tools you need to do the job?

Are you free to plan your own work schedule?

Are you free to choose your own working location?

Can you refuse work?

Can you send someone in your place as a substitute?

How much instruction do you get in how to do your work?

How are similar workers in your business/industry engaged?


All questions you'll need to consider before 'going self-employed'.

[steve1]

marshalla said:

Sounds like you are already self-employed, so you are responsible for your own tax, NI, pension, holidays etc.

You should probably spend the rest of the weekend working your way through this : http://www.hmrc.gov.uk/selfemployed/

It was after seeing that lot that I'd thought I would ask the question on here.
In simple terms then, will I be stopped tax according to earnings amount and a certain class NI.

[marshalla]

steve1 said:

It was after seeing that lot that I'd thought I would ask the question on here.
In simple terms then, will I be stopped tax according to earnings amount and a certain class NI.

You will be responsible for paying them yourself. Nobody is going to "stop" anything from your payment as it will be payment for services rendered, not a wage or salary. You either need to get your head around the HMRC information, or get a good accountant.

[Eric Mc]

This is a reply I gave on the "business" forum,. Self Employment essentially means "business". If you do work on a self employed business, you are receiving business income as a "sole trader".

Here is what you have to do regarding HMRC -

You need to notify HMRC that you have started receiving "self employed" income. You have three months from the commencement of self employment to register with HMRC.

What you are registering is the fact that you will need to start completing Self Assessment Tax returns - and possibly pay Class 2 National Insurance.

If you started the business today, you would notify HMRC that you commenced trading on 4 October 2014 i.e. part way through tax year 2014/15.

HMRC will therefore issue you with a Notice to Complete a Self Assessment tax return for the year 2014/15. They will issue this notice to you a few weeks after 5 April 2015.

You will have until 31 January 2016 to submit this return. If you miss this filing deadline, you will receive an initial penalty of £100 (which goes up quite rapidly if you continue to fail to submit the return).
If any tax arises because of your self employed activity, this is also payable in full by 31 January 2016.

The deadlines mentioned above are assuming you will be filing the return electronically. If you want to submit the return on paper, the filing deadline is much earlier - 31 October 2015. You have to inform HMRC that you intend to file a paper return as they will not send one to you automatically.

If you decide that electronic filing is best (most people do), you need to apply in good time for a Government Gateway number and authentication code. The moral is do this soon after you receive your HMRC Self Assessment tax reference (commonly referred to as the UTR - Unique Tax Reference). Once you have this UTR, you can then go on-line and sort out the extra codes you need for electronic filing.

When you notify HMRC that you will need to complete Self Assessment tax returns, they also automatically assume that you will have to start paying Class 2 NI. Self Employed individuals pay this on a regular basis, either monthly by Direct Debit or Quarterly by cheque or individual payment from your bank.
You can apply to NOT pay Class 2 NI if you know, in advance, that your Self Employed PROFIT (not gross sales) will be below the Class 2 NI threshold. This is currently £5,885. This is known as "Small Earnings Exception" or SEE.

[schmunk]

All good advice, but I'd still recommend asking yourself the question "Am I actually an employee?" first.

[Eric Mc]

That is always worth asking - but unfortunately, you might be at the mercy of the people who are using you as to how they intend to handle you. In many cases, people who really should be treated as proper employees are not by the people they work for. They become "accidental" sole traders as a result.

[steve1]

Some good advice, thanx.
This might be a really dumb question, but how is it more beneficial for some one to have a self employed person working for them rather than paying cash in the hand, I take it that they can claim for that person.

[marshalla]

steve1 said:

Some good advice, thanx.
This might be a really dumb question, but how is it more beneficial for some one to have a self employed person working for them rather than paying cash in the hand, I take it that they can claim for that person.

Claim what ? You are a subcontractor. They benefit from not having to worry about sick pay, holiday pay, pensions or employers' NI contribution because you're not on their payroll. They just pay you after you invoice (and can get, effectively, an interest free loan of the money they owe you since they can delay that payment if you're not very careful).

There is no difference between "cash in hand" and "self employed" from the point of view of whoever makes the payment. They're paying a fixed sum for services rendered and don't have to worry about the niceties of having an employee.

BUT - how many hours will you be doing and how long is the contract? Will you have a right of substitution in the contract (i.e. can you send someone else to do the work) ?
If it's too many hours, over a prolonged period and the only person who is allowed to work there is you, then you sound like you will be an employee and should be on the payroll. HMRC are likely to take a dim view if this is the case.

Edited by marshalla on Saturday 4th October 17:25

[steve1]

I see what you're saying, but when someone pays "cash in the hand" how do they show that when there doing their accounts, as opposed to paying against an invoice.
I've always been paye so know very little about this side of things, ( in the real world that is ).

[Eric Mc]

steve1 said:

I see what you're saying, but when someone pays "cash in the hand" how do they show that when there doing their accounts, as opposed to paying against an invoice.
I've always been paye so know very little about this side of things, ( in the real world that is ).

A business can pay its suppliers any way it likes - by cheque, electronic transfer or by cash.

The problem with cash is that there is less of an "audit trail" of the transaction so it is easier for a business to "hide" cash transactions. This is, of course, illegal and would constitute fraud on a number of fronts (both business and tax) but it does go on.

If a business makes use of too many hidden cash transactions, this will result in serious "holes" in the formal accounts it prepares and, in the end, probably loss of control of what is actually going on in the business.

As has been explained above, a business may wish NOT to take people on as proper employees because they want to avoid their proper obligations as employers.

The good news is that if HMRC ever twig to the fact that they are paying staff outside of the PAYE system, they will make the EMPLOYER (i.e. not you) pay over to the HMRC the underpaid PAYE and NI.

[DC2 Mark]

HMRC have a useful section on their website with something called an Employment Status Indicator- follow the links on here:

http://www.hmrc.gov.uk/calcs/esi.htm

HMRC claim that if you answer the questions on the 'ESI' questionnaire honestly you can rely on it when determining your employment status.

If your circumstances change, then it would be worth worth redoing the ESI.

[mph1977]

steve1 said:

I see what you're saying, but when someone pays "cash in the hand" how do they show that when there doing their accounts, as opposed to paying against an invoice.
I've always been paye so know very little about this side of things, ( in the real world that is ).

Cash in Hand means nothing...

You can be paid Cash into your hand and variously be

1. A legit employee after all the good of days of armed blaggers taking out wages runs ....

2. Some one the business considers to be self employeed / a subcontractor

3. Off the books in the black economy.

[Eric Mc]

As I said, cash is a legal way of paying people. It would be a bit much if cash transactions were outlawed - much as the banks and government would like this.

However, just because a transaction was conducted in cash does not mean that the traders can ignore it from a record keeping, accounting and tax point of view.

[hedgefinder]

marshalla said:

You will be responsible for paying them yourself. Nobody is going to "stop" anything from your payment as it will be payment for services rendered, not a wage or salary. You either need to get your head around the HMRC information, or get a good accountant.

unless it falls under the construction industry CIS regulations in which case they may deduct tax at 20% - from memory.

[marshalla]

hedgefinder said:

marshalla said:

You will be responsible for paying them yourself. Nobody is going to "stop" anything from your payment as it will be payment for services rendered, not a wage or salary. You either need to get your head around the HMRC information, or get a good accountant.

unless it falls under the construction industry CIS regulations in which case they may deduct tax at 20% - from memory.

Interesting - I'd never heard of that scheme. Says a lot about the construction industry, I think.

[condor]

I usually get paid cash - I write a receipt for every payment I receive.

[Eric Mc]

marshalla said:

hedgefinder said:

marshalla said:

You will be responsible for paying them yourself. Nobody is going to "stop" anything from your payment as it will be payment for services rendered, not a wage or salary. You either need to get your head around the HMRC information, or get a good accountant.

unless it falls under the construction industry CIS regulations in which case they may deduct tax at 20% - from memory.

Interesting - I'd never heard of that scheme. Says a lot about the construction industry, I think.

Schemes of this type (the current version is at least the third permutation) have been around since the early 1970s.