I'm being made redundant at the end of this month but have been offered one month's work, on a self-employed basis, by an ex-work colleague who is aware of my skills and wants me to audit their business model to find ways of streamlining things.
I will issue an invoice for services rendered and the company will pay it but I am mindful of the need to declare it and pay tax/NI.
This is strictly a one-off exercise and won't be repeated as I intend (fingers crossed) to be back in a PAYE environment by October.
How do I approach this? Do I write to my tax office, explain what I've earned and leave it to them to issue a tax demand? Or will they adjust my tax code? As a self-employed individual (albeit for only a month) what expenses am I able to claim for the month in question? Travelling expenses, for example?
I have no intention of dodging tax/NI payments but, at the same time, I'd like to minimise same.
You will need to declare that you're self employed no matter how short the time or how little you earn.
You need to fill in a Self Assessment form when the time comes where you will work out how much tax you owe and you need to pay this by the deadline, not wait for HMRC to ask you for the money.
If you earn less than £5,075 through self employed means you won't need to pay National Insurance on those earnings. But you will need to fill out a CF10 (Certificate of Small Earnings Exception) form for this.
You can class travel an expense which will affect you end profit/loss and how much tax you need to pay. There are lots of rules around what you can and can't claim for, you need to do your own research on this which I'm sure can be found on HMRC's website.
It might sound daunting but it's not really that hard. Have a look at the URLs below.
I just can believe the wimpy goody two shoes answers on here.
If you?ve been on PAYE you?ve already been paying New Labour?s outrageous rip-off taxes long enough, you?ve paid enough already and got next to f**k all in return.
Frankly, for one month?s work are the IR going to be interested in the expense, far greater then the return, of tracking you down with all the other stuff they?ve got to do.
Besides, we?ve got a new government now that, thank heavens, is much more ideologically inclined towards taxpayers rather than tax collectors (many of whom will no doubt be soon losing their jobs, and hurrah for that).
They?ve also indicated they will be revisiting the whole issue of freelancers? taxation and that bloody stupid IR35 crap that did so much damage to those that were guilty of daring to step outside their compartmentalised socialist vision of the working world and into the real world, in the process causing those Bolshevik bastards so much inconvenience.
Labour loved nothing more than taking your money off you sending it around in circles and then condescending to give you the pathetic loose change that was left back in order to tie you into the state and frighten you off voting Tory.
OTOH, if everyone tried to dodge taxes like you are proposing then where would we be? Your attitude is simply amazing. We may not like them, and they may be unfair, but they need to be paid. I expect you would be happy if your next door neigbour was benefit scrounging, because he could get away with it.
Dole scroungers are poncing off other people?s money.
Avoiding tax, now enshrined as a EU human right, is trying to hang on to more of your own money.
I would say there?s a difference there.
Labour?s taxes took the piss and were highly economically damaging all round.
The Laffer curve tells us that 0% taxation raises zero revenue and
100% taxes would also raise zero revenue because no one would bother their arse.
So, between those two points is the optimum level rate of taxation that will raise maximum revenue.
Currently, most of us are paying close to 70% of our incomes in taxation when all taxes are considered.
We?re well on the wrong side of the Laffer curve with the tax rates set by Labour and no one is benefiting from that.
Deficit permitting, hopefully the coalition will soon follow Maggie?s example and start cutting back taxes, something Labour was always incapable of, then it should be win win.
You don't get it do you. *You* will never own *any* money whatever your bank account may say. It doesn't belong to you me, the brick wall nor any government. Money is an invented concept.
Stick a starving man on a remote island with nothing but a Million pounds and see if he lives or dies. As a bonus give him his house he has slaved his bollocks off for too.
Tax avoidance is legitimate. Tax evasion is not. The more people evade taxes the more the rest of us have to pay. I personally don't like that. You appear to.
Agreed.
Although I disagreed with just about everything Labour did and stood for
- including their tax regime - I don't agree that individuals have the right to decide how much tax they are willing to pay. That's anarchy.
I don't think this is correct. He is not starting a business as such and so technically is not self employed in the full-blown sense. These are casual earnings, and there is a space for them in the normal tax return form without needing to resort to the self employment pages.
Yes. And if he doesn't already receive the tax return form, he needs to ask for one.
Typically (and in particular as he expects to become employed again) any tax due will be collected by adjusting his tax code.
You only need that if you want to be exempted from paying Class 2 NICs, but for casual earnings he wouldn't need to register as SE and so C2NI is not required anyway.
That lie is about as convincing as all the "Jam Tomorrow, inflation stands at 3%" party line put about by Gordon Mac Shite-Features during the years of stagnation.
The tax take is nearer 85% or more.
Consider the following :
Dave and Geoff live next door to each other, Dave is a Decorator, Geoff is a Plumber. Both are employed working for their own limited companies and both are Vat registered.
Dave and Geoff both do regular commercial work for which they charge £100/ hour, upon which they pay all the taxes due and they both pay higher rate tax.
Now Geoff, could do his own decorating but like as not he'd make a "bugger" of it,because he's a plumber.
Likewise Dave could do his own plumbing but like as not he'd make a "bugger" of it because he's a decorator not a plumber.
So ... as a rule they barter their labour between themselves, but this is not the correct way, they should account to HMRC etc for the taxes they havent paid.
Anyway just by way of a change one day Geoff, concerned about his pension / NI position, does an extra £100 worth of plumbing for Dave and puts it all through the books. To get the £100 to pay Geoff, Dave has to do some commercial work. Out of every £100 he bills out £15 goes to the chancellor as Vat leaving £85 which the can draw as wages, out of this they pay income tax at higher 40% rate = £34, leaving £51 out of which they pay both halves of the NI = 22% (?) = £11, leaving Ca. £40.
So Dave has to bill out his regular commercial customers £250 to get £100 in cash to pay Geoff. Geoff's tax position is identical to Dave's so that £100 will attract income tax at the higher rate band + both halves of the NI leaving Ca. £40.
Further if Geoff gets his £40 and spends it, almost everything he spends it on includes an element of Vat and if dutiable Excise duties as-well - as.
And in fact if Geoff uses his £40 to fill his fuel tank Dave will have billed out his customers Ca. £250 to put Ca. £3.00 worth of petrol in Geoff's tank.
{All errors and approximations accepted}
Eg. NI calculations are approx, but there are countervailing tax charges not taken into account such as B.I.K. on car + telephones, business rates, sundry fees and charges etc.
Now tell us all again that when "All taxes are considered" we pay taxes equivalent to 40% of our income.
You can't really "look it up", because it will vary somewhat depending on what you spend your income on.
But it is most certainly a great deal more than 40%. Most of us have paid over very close to 40% of our gross income before we even get any of it, just in income tax and NI.
Since most of what we spend money on then has VAT charged, all that expenditure has another 17.5% on it, and then quite a few things have other taxes on them as well.
I don't believe "most of us" are giving 70% of what we earn to the government, but it is certainly way more than 40% - I would estimate that for most people it will be somewhere between 50-60% (quite a bit of what we spend doesn't have additional taxation,which is why it is that low).
See? By your own figures, he gets to keep £40 out of the £100 he bills. That represents a 60% tax take, not 85%.
You are now cheating by applying this take twice. One of your heroes pays 60% of his company's income in taxes, and uses the remaining 40% to engage his pal's company, so that, in turn, his pal gets to keep
40% of that. 40% of 40% is indeed roughly 15%. That makes the tax take
85% *for twice round the loop*. The only fair way to look at this is by considering only once round the loop.
Another flaw in the argument is that the original claim was about what percentage *of our income* (that's the *whole* of our income, not the marginal rate) *most of us* pay in taxes. Well, most of us are not higher rate tax payers because the median income is below the higher rate threshold.
Most of us are employees (and not of our own companies). Most of us pay less than 30% of our income on income tax and NI combined. That's because although the sum of IT and NI rates exceeds 30%, there are nil rate bands for both IT and NI, and for most of us these bands represent a sizeable fraction of our income. So we keep at least 70% of what we earn.
Most of us spend a sizeable fraction of our income on rent or mortgage payments, and those do not attract VAT. We spend much of it on domestic energy, for which there is a reduced rate of VAT. Though to compensate, we also pay quite a bit on Council Tax, and while there's no VAT on that, the whole of it counts as "a tax". Also there are higher rates of tax on road fuel, as you pointed out. To average all that out, we could perhaps agree that the equivalent of 2/3 of our net income is spent on stuff to which tax equivalent to the standard rate of VAT has been added. If 2/3 of our spend involves 15% tax, that's equivalent to 10% of our spend (i.e. of the 70% of our income we kept) goes on tax.
That makes the tax take for most of us not more than 37%.
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