Self emploeyd tax, I'm confused?!?!

Freelancer?

Hi,

I'm thinking of becoming a freelance designer but I need to work out how much I need to charge per hour (based on 47 weeks at 37.5 hours) in order to earn a minimum of £17,000 pa. What percentage of my earning will go on tax and NIC?

Thanks for any advice,
Rach

fengirl_2

Tax is only charged on your profit, so without knowing what that is, its hard to say.
For tax, the first 6035 of your profit (this year) is exempt and then tax is charged at 20%. However, if you have already had earnings this year, you need to take that into account.
Class 2 NIC is £2.50pm and then 8% of all profits over 5435 this year.
You need to look at the HMRC website for tax and NIC free limits for next year as part of your first year's trading will fall into both years, assuming you start before 5 April.

LittleVoice

Thought Class 2 NIC was £2.30 per week this year and £2.40 next.

Freelancer?

The idea is that I'll be "employed" as a freelance designer buy the company who I'm currently employed by. They're having to let me go because of budget cuts and restrucures etc but there'll be too much work for them so they'll have to out source, it's sounds stupid I know but that's how it's worked out. If I'm working on site with them then I would imagine I'll have very little overheads, therefore all my earnings will count as "profit"? Sorry I have very limited knowledge on these things and I don't want to charge too little. If I budget that say 40% of what I charge per hour will go to Tax and NIC would that be sensible. Thanks for your help, it really is appreciated.

Rach

hnwestuk

Are you aware of things you can claim the tax back on? You're taxed on your net profit - i.e. your income minus your business-related expenses. You subtract the value of your expenses from your income before you work out how much tax/NI you owe on what's left.

Like, if you drive to work in your personal car, you can take 40p a mile. If you use a room in your house as an office, you can claim for a portion of the running costs of your home. If you need to buy any office equipment, you can offset that as well. There are loads of things - it's definitely worth looking into.

The tax you save is not likely to be a lot, but it'd be a nice bonus!

LittleVoice

Just agreeing with a company that you are freelance/self-employed does not mean that you are. In the end it is the HMRC who will decide. Given that your work will be at the client premises and, presumably, you are not going to be able to subcontract what is done then you are more likely to be continuing as an employee. That is perhaps the first thing to sort out - whether you would actually be self-employed rather than a PAYE employee.

Freelancer?

Are the NI contributions calculated after the tax has been deducted or before? or is that an incredibly stupid question?

hnwestuk

Before, I believe.

And I agree with the above post about whether you count as a freelancer. I thought that unless a portion of your work was from a different employer then you still counted as an employee of the company who pay all your income in that financial year.

Have you been to businesslink.gov.uk? It's pretty good at explaining business set up things.