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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I am presently self employed working from home with one main

Customer Question

I am presently self employed working from home with one main client. At the moment I invoice them for approximately £2000 - £2300 per month and then sort out my own tax etc. They want to take me on as an employee but I am worried that if I do that the amount of tax I pay will become significant and thereby lessen my disposable income.
Obviously I will have the benefit of holidays, sick pay etc...but I am not sure what is the "norm" as I have a home office at the moment which is fine but how will that work when I am employed..ie if the computer breaks?
They have offered me £25000 per annum but I dont think that is enough...what do I need to ask for and how do things stand re tex etc
Submitted: 5 months ago.
Category: Tax
Expert:  Sam replied 5 months ago.

Hi

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

As this is your only client you should in fact be an employee and not self employed as per the employment status legislation.

However as en employee expenses can still be considered if deemed allowable. If there is no office in which you could work - then home costs would still be allowable, as would the costs to run the equipment such as telephone and internet and travel. If however there is an office from which you could work then you will need to discuss how the employer can manage you working from home as an allowable expense.

Whether employed or self employed he cost in tax and relevant National Insurance is about the same, so the main position which may affect your take home pay is whether the expenses are allowable.

So tax if employed OR self employed for this year allows the first £11,000 tax free then tax due after

With National Insurance things are slightly different between employment and self employed

As an employee the first £672 a month is free then the remainder liable to 12%

As a self employed individual ou have Class 2 National Insurance at £2.80 a week and then Class 4 with the first £8050 tax free and any reminder liable to 9%

So lets look at

1) Employment £25000 less £11,000 personal allowances = £14,000 x 20% tax = £2800

(This may be reduced with allowable expenses)

Class 1 National Insurance £25,000 less £8064 = £16936 x 12% = £2032.32

Total deductions £4832.32

Take Home per year £20167.68

2) Self Employed £2000 to £2300 (max) which is £24,000 to £27,600 a year but I will use £25,000 again to illustrate matters Income £25,000 less £11,000 personal allowances = £14,000 c 20% = £2800

National Insurance year of Class 2 £145.60 and Class 4 on £25,000 less £8060 = £16940 x 9% = £1524.60

Total deductions £4470.20

Take Home £20529.98

Reduced by allowable business expenses

So you can the added of benefit of sick and holiday pay leaves you only £400 worse a year of - and no costs to file self assessment tax returns or put money aside for self assessment (or payments in account) as deductions are made from your salary monthly

Let me know if I can assist further

Thanks

Sam

Customer: replied 5 months ago.
Hi Sam,Thanks for the reply, it makes much more sense now.One thing that I also thought was as a self employed person my expenses (for example, some phone, heating, internet etc) lowered my profit and therefore the amount of tax I paid. Looking at last years accounts I actually came out with, after paying my tax and NI with about £22500. In order for me to "come out with" that amount as an employee how much would I need to earn....bearing in mind I work from home?. How does that work normally for employees working from home full time, I want to make sure when I negotiate my wage and benefits that I am at least as well of as I am now? What would you suggest as I have absolutely no idea what is normal as i have been self employed for 10 years!!!
Expert:  Sam replied 5 months ago.

Hi

Yes you are right - self employed expenses would lower your tax but you may well be able to also claim these as an employee - which would put you the same as your self employed position - but its all a question of whether your employer has a abse for you to work from (office within their office as it were) rather than continue working from home

But please note you should NEVER have been self employed as you only have one "client"

Thanks

Sam

Customer: replied 5 months ago.
Hi...my potential employer works from a business hub....it's a very small business with just myself and another couple of part time employees...all of which work remotely. I couldn't work there as there is no office for me and it's in London, I am in Norwich. How would I claim the expenses as an employee?? Would it be a higher basic wage or is there another way??
Sorry if I'm being stupid. Oh and I do have other small clients....this is just my main client that I work pretty much full time for!!Thanks
Andie
Expert:  Sam replied 5 months ago.

Hi Andie

Thanks for your further response

This does not negate the fact you should have been an employee with this specific "client" from the beginning (and I suspect this is why they are suggesting this now)

The other clients may well be genuine self employment but not this one based on what you advsie

You would claim the expenses either from the employer if they were agreeable to this in addition to your salary (as tax free payments IF they were deemed to be allowable) OR you would claim them against your employment income - at the year end against your salary.

Thanks

Sam

Customer: replied 5 months ago.
Hi Sam,Thanks so much for all your help.If I decided I wanted to stay self employed could I increase my other clients and then it would be acceptable? Is there any way around it?Thanks,
Andrea
Expert:  Sam replied 5 months ago.

Hi Andrea

Thanks for your response

As things stand this particular client should be employment but any other work you take along with the other odd client may well be able to be self employed - but not this particular contract.

Thanks

Sam

Customer: replied 4 months ago.
Hi Sam, so sorry I have been away for a few days getting some R&R. I have my meeting with the client on Friday and want to go well armed with my requirements!!! The most important thing is for me not be worse off financially! I have looked at my finances etc over the last 12 months and after tax I cleared £22,800. I would like to at least clear this as an employed person. I think probably the best way would for me to pay my own broadband , phone etc as it could get complicated? What should I ask the employer for as a gross wage in order for me to clear the above? Also any other advice or thoughts you have on this would be great as I have been self employed now for over 10 years and dont have a clue about being an actual employee working from home! Thanks again, you have been amazing!
Expert:  Sam replied 4 months ago.

Hi Andrea

Thanks for your response and I hope you are well rested!

As you can see whilst there is an additional amount to pay initially via the PAYE route - any expenses that the client does not reimburse you can can claim year end from HMRC - plus the security of holiday and sick pay - far outweighs (in my opinion) the self employed route - which I add again is NOT actually ideal as this work does seem to fall within the employment status legislation.

If you wish to clear £22,800 then we need to ensure that you have an annual salary of £29,000 (which would leave you £22.887 a year) (with the £11,000 tax free allowances the remainder would be liable to tax - and you would pay £3600 a year and £2512 National Insurance a year) then any out of pocket expenses you incur can either be claimed from HMRC (or a business proportion) or your employer can pay these tax free.

Plus your then get credit towards a better state pension (rather than just the basic state pension that Class 2 contributions provide) PLUS the ability to be provided with a company pension (as per auto enrollment for employers)

If you wish more information as to how to claim expenses as an employee - I can either offer additional services or a telephone call (whichever you prefer but both will incur an additional charge as this is over and above what the original post and fee asked for.

If you have all that you need then it would be appreciated if you could rate me for the level of service I have provided (or click accept)

Thanks

Sam

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