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Sam, Accountant
Category: Tax
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I am attempting to start work as a self employed therapist

Resolved Question:

I am attempting to start work as a self employed therapist and am still on disability benefits. The BA know about this but can't offer me any advice on tax codes etc. I have never paid income tax before and the work will be sporadic to start with so may not be earning very much. I am on child tax crdit as I'm a single parent and income support. The firm I'm going to be working with are suggesting that they put me on temporary tax code. Is this right?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.

Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

Can you advise which disability benefits you will remain on, and whether you have been advised any information regarding permitted hours or income limits -

The tax credit office will need advising that you are now working, and whilst it would be impossible to project what income you are likely to earn - you do have to make a rough estimate (I worked on the premise of £50 a week for the first year of self employment - it was a lot less, but at least it gave the tax credit office a figure to work with.
But they also need to know what hours per week. I was providing services, so I knew what hours I was going to make myself available - plus all the networking and getting in touch with relevant organisations that I felt might be willing to benefit from a mutual affiliation - so I knew I would put in 30+ hours a week.

The reason you need the amount and the time, is you will then be considered for working tax credit and child tax credit, whereas at the moment you are just on child tax credit.

The income support, have you been advised that this will continue - as there are some schemes that allow payments to run for a further 26 weeks, to help you get started - what have you been advised on this ?



Customer: replied 3 years ago.

I am already working a couple of hours per week and the first £20 is not take off my benefit. I have been sent forward for a course with with the chamber of commerce to prepare for self employment. At the moment I have beeen advised that anything above that I earn will be reduced from my benefit pound for pound. I think there will be a run on with the income support but haven't spoken to the experts yet. I know I would get tax credits with disability premium but would be responsible for my mortgage. Nobody seems to be very clear self employment though.

What tax code would I go on to though?

Expert:  Sam replied 3 years ago.
Hi Maureen

Thanks your response

As far as self employment is concerned for benefit purposes its treated the same as employment (only its the net figure that is taken into account, so your gross earnings less the allowable expenses incurred to earn that money rather than the gross pay in employment)

You will not have a tax code as that is for employment - but will need to register as self employed with HMRC, link here for you to do this, and then after each 5th April you are sent a self assessment tax return to fill in, to declare all income (so any payable taxable benefits and the self employment income and expenses) this then has to be back to HMRC by 31st Oct if filling in the paper return or by 31st Jan the following year if filing online
Then any tax and National Insurance (Class 4) you owe you pay also no later than 31st Jan.

So if you started self employment on 12/04/2014 - then the first self assessment tax return would be issued to you after 05/04/2015 - this has to back with HMRC by 31/10/2015 if the paper return and by 31/01/2016 if filing online, and any tax/National Insurance owed paid by 31/01/2016 also.
So make sure you start putting money aside for any Tax/National Insurance that will be due - so you are not caught up with finding a lump sum at that time.

Link here to register for self employment

You would eventually be responsible for your mortgage - unless a claim for income support remained, or employment and support allowance.
But as a thought do you claim disability living allowance as this is additional support, and is NOT a taxable benefit and NOT means tested either, but adds additional funds to the pot.

And for tax credits then yes, it seems likely that you would then get a disability tax credit - if you worked more than 16 hours a week and if you received either
•Highest Rate Care Component of Disability Living Allowance
•Higher Rate of Attendance Allowance
•Enhanced Daily Living Component of Personal Independence Payment
OR Other benefits that pay a disability element
I have added a link to the helpsheet here that details this all further



Customer: replied 3 years ago.

Thanks Sam

Yes I do receive DLA low rate care high rate mobility for now but I am improving mobility wise.

What does class 4 mean with regards XXXXX XXXXX contributions? Will I be able to get a state pension or just pension credit? I have a small private pension but only pay £20 per month towards it?


Thanks Maureen

Expert:  Sam replied 3 years ago.
Hi Maureen

Thanks for your response

As a self employed individual there are two types of National Insurance
Class 2 at the rate of £2.70 a week (soon to rise to £2.75 a week from 06/04/2014) and this is paid quarterly or monthly - and this contributes into a basic state pension.
But if your net self employment (income less expenses) is less than £5725 a year (£5885 from 06/04/2014) then you can apply for a small earnings exception - which exempts you from paying these,.
My advise is - pay them regardless - if your income support ceases - (if it carries on then a contribution is made from you) as this does then allow you to have a consideration for a basic state pension later on

Then Class 4 which is assessable on your self employment profits (so income less expenses) and this just goes into the government coffers - and pays towards education, fire service, hospitals etc
But if your self employed net income (income less expenses)is less than £7755 (will increase to £7956 from 06/04/2014) then no calculation is made for Class 4 National Insurance, if its more, then a charge of 9% is made on anything over this threshold.

The pension credit relates to those in retirement on very low income, and the pension credit is a "top up" to assist with basic living, so if a pensioners income (as a single person) was less than £145.40 a week - then pension credit would be paid


Customer: replied 3 years ago.

Thanks Sam, one last thing. The firm that I would be working for aims to employ me when his business picks up sufficiently to guarantee that he can pay me. Will that affect my status if I am also self employed elsewhere? Can you be an employee and and self employed?





Expert:  Sam replied 3 years ago.
Hi Maureen

Thanks for your response

Yes you can have any many sources of income all employment or all self employment or a mix of both.

You then can have your personal allowances (as they are now) to operate against this employment - just keep HMRC informed, so they take into account any benefits you might still receive (just income support and any employment and support allowance etc) so these are taken into account throughout the tax year.

Then on the self assessment tax return you declare all income each year - from the taxable benefit, employment and self employment, so HMRC can review the whole picture with all incomes (and any tax suffered)



Customer: replied 3 years ago.

Thanks Sam for all your help. Not sure I really understand my way around all this yet especially how to fill out a tax return! To clarify then, if I begin working with this firm, I have to register as self employed before I start when still on Income support and fill out a self assesment at begining next year? Then go on to working tax credits? is that right?


Thanks again



Expert:  Sam replied 3 years ago.
Hi Maureen

Thanks for your response

At this stage just take it one step at a time, when you get your first tax return - then we can always hep you here on just Answer - as we can with other issues that arise between now and then.
You can always ask for me Sam Tax in any opening post, and the other experts will know to let me answer this for you.

But your understanding is correct - if you are self employed, then get registered within 3 months of your first income or actively seeking clients - (even if still on income support or in receipt of any other benefits)and then you will start to pay Class 2 National Insurance (its up to you whether you complete a direct debit form for HMRC - which they automatically supply after you register, or whether
you pay this quarterly (a bill is sent to you)

Inform the tax credit office of your change of circumstance - that you are now self employed - with an estimate of what you think you will earn each week - and how many hours per week you will work. Then they will recalculate your award and as long as you are working at least 16 hours, then you will get adjusted child tax credit, working tax credit and a disability element.

Then after the first 5the April you will fill in a self assessment tax return - to declare ALL income.
Also receive a tax credit renewal claim pack to declare any actual income (so an projected income becomes an actual figure)

Good luck with your new venture - if I could trouble you to rate the level of service you have received, it would be appreciated, as this ensures I am credited for my time.


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