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Sam
Sam, Accountant
Category: Tax
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I am currently employed working 4 days p.w. with a company

Resolved Question:

I am currently employed working 4 days p.w. with a company pension also being paid, so some of my earnings in the higher rate tax bracket. I have the option to take an income from an annuity that is from a personal pension pot and either reduce my working hours further (to 3 days p.w.) or to leave and become self-employed, working part-time for 3 companies that I know will be clients. Where can I go for advice re the tax implications of all this to help me work out which is best for me in difficult home circumstances - my husband is having cancer treatment?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

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

First I am sorry to hear of your husbands health - and I can understand that you would be best placed to work the hours that suit at this difficult time. However being self employed is not a matter of choice, the work you undertake must fall into the remit of meeting all the criteria - for self employment to be considered.

The fact you will work for more than one business is a good start, but could you advise
1) Are the other two (or three) clients, those you have found yourself, or are they connected with the current employer
2) What work will you provide, what duties will your perform, and where will these duties be performed
3) What business equipment or tools would you use for this work, and will you provide these yourself
4) Will you advertise for other clients


If you could let me know more about this, then I can advise further, and what steps you would need to take to register this.

Thanks

Sam
Customer: replied 3 years ago.

Answers to your questions:


1) Two of the clients are unconnected to my current employer. The third would be my current employer, but the work would be much reduced from what I currently do.


2) The work is general administration, book-keeping etc. From home (I already work from home on a permanent basis). I have one room dedicated as an office.


3) I have my own laptop/printer/software.


4) Probably not as these 3 would be enough for the hours I want to work.


 


Hope this clarifies.


Ann

Expert:  Sam replied 3 years ago.
Hi Ann

Thanks for your response

The fact you will work from home, use your own equipment and the work duties are such that no involvement with the employer would be needed - just them supplying the appropriate papers for you to complete your duties, will mean that its fine for you to be self employed.

This being the case, then you should arrange to register this with HMRC - link here for you to do this,
https://online.hmrc.gov.uk/registration/newbusiness/introduction

If you are under age 65 - then you will have to start paying Class 2 National Insurance, if this income is likely to be more than £5885 a year - at the rate of £2.75 a week.
HMRC will issue you with a direct debit form, if you wish to pay this monthly OR National Insurance contributions office will issue you with a quarterly bill.

You should then keep records of all the income, in the form of, invoices you raise for the work undertaken, bank statements and paying in book and also keep a record of all expenditure, such as stationary and ink cartridges, insurances, such as personal liability, travel expenses, such as to and from the clients premises.

Business equipment is an allowable expense too, but the records need to be calculated under the capital allowance regime, which I suspect you are aware of, as you already undertake book keeping.


Then at the year end (5th April 2015) HMRC will notify you, of the need to complete a self assessment tax return. You can either fill in the paper return (to be back with them by 31/10/2015) or file your self assessment online (this will require you to register and activate the free HMRC online services) and then the tax return needs to be back to HMRC no later than 31/01/2016.
Any tax and Class 4 National Insurance due (Class 4 National Insurance if you are under age 65) is then due to be paid by 31/01/2016 so you will need to work out how much tax and National Insurance (if applicable) you need to put by as your personal allowances (at least in part) are being used against your annuity/pension.
Class 4 National Insurance, is exempt for the first £7956 and then at 9% on anything over and above this threshold.

That's a general guide on how this will work, do feel free to ask any follow up questions

Thanks

Sam





Customer: replied 3 years ago.

Hi Sam, many thanks - pretty much what I thought, but wanted to be sure that I had everything covered. Although book-keeping is part of my role, income tax is not and I am wary of getting it wrong with HMRC! I was on self-assessment some time ago, but not for a few years so I am registered and used to doing their marathon forms.


 


Just a couple of follow up points please. Is the exemption for Class 4 NI based on profits? So if the profit was say £10,000, the first £7956 would be exempt and only the balance charged at 9%?


 


If all my personal allowance is used up by the pension/annuity, presumably any other income will be taxed at 20%. Is that correct? If so, I can estimate my tax liability to put aside.


 


As you say, being self-employed will give me the flexibility to work when I want, allowing me time when I need it, so this is my preferred option. I just need to work out how much income I need on top of the pensions to manage.


 


Thanks for the help.


Ann

Expert:  Sam replied 3 years ago.
Hi Ann


Thanks for your response

Class 4 is yes based on profits and the threshold is as advised £7956 (£10,000 threshold applies to personal allowances, but Class 4 is not in line with this) so if your net self employment is less than £7956 then you do not pay any. If its more than £7956 then this first £7956 is exempt, with any figure over and above charged at 9%

Yes, that's correct, if all your personal allowance is used up by the pension/annuity, then as long as your combined income is less than £42475 (basic rate threshold) then the net self employment will just be charged at 20%. If your total income is more than £42495 (but less than £149,999) then any income in excess of the £42,475 will just be charged at 20%

Let me know if you have any follow up questions. Even when you embark on this, you just want to check any aspects, then do come back to Just Answer - and if you prefer, you can always ask for me Sam Tax (just ask for me in your opening post)
If, in the meantime you could rate the level of service I have provided, it would be appreciated, as this ensures I am credited for my time.

Thanks

Sam

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