replied 3 years ago.
Thanks for your question
I am afraid is not such a clear cut case whether the stipend is tax exempt, as it depends on many factors, so you would need to establish with HMRC if this is the case, by providing them with all the relevant documents pertaining to the award, as to whether it can be paid tax free. Or at least sight of the relevant agreement held by the university that details HMRC's agreement that this element of your payment can be paid tax free.
Now onto your other questions
1) Personal Tax Allowance (which I understand to be £10,000, right?):
Yes that's right for 2014/.2015 the annual personal allowance is £10,000 tax free
a) Have I understood the nature of the stipend correctly: the entire stipend is tax exempt, and the tax free allowance is calculated based on anything after it? I.e. I would not need to pay tax on income until my earnings reach £21,000 (non-taxable stipend + personal tax allowance)
If the stipend can be paid tax free, then your understanding of the situation regarding the tax is entirely correct, but I would urge you to establish the tax free element of the stipend either from the University or HMRC (or both)
But its not based on when your taxable income reaches the £10,000 mark
- a system known as PAYE allows 1/12th (if paid monthly) or 1/52 if paid weekly) of your taxable income to be paid tax free
Which would equate to £833.33 a month or £192.30 a week
This would apply just to the earnings paid under employment from the university.
b) Or have I misunderstood the tax exempt nature of my stipend? Is it actually only tax exempt up to £10,000, and so my taxable income would be £10,000 (total annual earnings minus personal tax allowance).
c) Or, indeed, other?
2) Tax Return: Personal/Self-Employed
a) Should I register as self-employed in order to declare my income from consulting, or is it better to cover this as “other” earnings on a personal self-assessment tax return?
You must register as self employed for this consulting income, which will lead to you completing a tax return (self assessment) after each 5th April to declare ALL income from the preceding year (the tax year runs from 6th April one year to 5th April the next)
HMRC then establish whether any tax is due, if the total of your employment and self employment is in excess of £10,000 and any tax suffered under PAYE through employment is also taken into account against your tax bill.
b) Is this a different answer if the piece of consulting is definitely a one-off, maybe a one-off/maybe ongoing, or definitely ongoing?
I would register as self employed anyway - as it ensures the correct consideration of self employed National Insurance, which if your self employed earnings are less than £58855 for the year - a refund on any overpaid contributions can always be claimed back from the National Insurance office.
c) Is it a different answer depending on my total earnings?
Nothing to do with the level of earnings, once self employment has been added into the mix, you need to make sure HMRC are aware of this within 3 months of this having started (occurred)
d) How does the National Insurance element work for the consulting side?
Once you register for self employment - you will be expected to pay Class 2 National Insurance which is at the arte of £2.75 a week, but these are only expected if your self employed income is expected to be more than £5885 or more for the year.
If you aren't sure, then I would go ahead and pay these, as you can always claim these back at the year end (as advised above)
Also if your self employment net income (so income less expenses) is in excess of £7755 a year, you also have to pay Class 4 National Insurance, which is at the rate of 9% (up to £41865) then 2% thereafter.
The Class 2 National Insurance is paid monthly or quarterly throughout the tax year in question, whereas Class 4 National Insurance is calculated (if due) once you have completed and sent in your self assessment tax return, and paid the following 31st Jan along with any tax owed.
So if self employment started bow, your first self assessment tax return would be issued to you after 05/04/2015, on which you would declare ALL income, Your income would be added together for tax purposes, an then the first £10,000 allowed tax free, and then any tax suffered through employment would be deducted leaving a consideration for any further tax due.
For National Insurance - self employment would be considered for Class 4 National Insurance and added to the tax due, and both would be payable to HMRC no later than 31/01/2016.
a) If the advice is to register as self-employed, does it matter when I register? Online advice refers to it being within 3 months starting the business. Is that 3 months from first invoice / first receipt of payment / other?
Yes within 3 months as advised above.
That date is determined by the advertising to trade OR the first client being engaged, whichever is the sooner.
b) What can be included in expenses if I go for self-employment (there will be some working/planning from home, as well as a small amount of travel)?
This is vast topic - so I have added a link here that details the expenses allowed.
4) I understand that businesses under £77,000 turnover don’t charge VAT. So, my invoices for consulting will be VAT-free to anyone engaging my services?
The VAT limit is £81,000 and you are correct, if your turnover is going to be below this in any rolling 12 month period, then you do not need to register for VAT so do not charge it to your clients.
So yes, based on the amount you advise you will earn, your invoices will be VAT free
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