Unemployed to working as Self Employed?

markbass

Guys i really could do with an answer on the above question, if you could!

Would i have to put by 30% of the petrol money and other expenditures i'm reimbursed each week, or JUST the money i'm paid for the work i do?

Because if i do i'm continually having to find petrol money and then it's effectively being reimbursed at a 30% loss each week, even if it is deductible from the self assesment when due, doesn't help really.

haydonwynter

markbass wrote: »

Guys i really could do with an answer on the above question, if you could!

Would i have to put by 30% of the petrol money and other expenditures i'm reimbursed each week, or JUST the money i'm paid for the work i do?

Because if i do i'm continually having to find petrol money and then it's effectively being reimbursed at a 30% loss each week, even if it is deductible from the self assesment when due, doesn't help really.

TAX

If you earn £600 per week x 52 weeks thats £31,200
This tax year (2010-11): The basic Personal Allowance - or tax-free amount is £6,475.

£31200 - £6,475 = £24,725 taxable income per year

£24,725 - 20% income tax = (£4,945 Tax per year)

After tax your income will be £6,475 + 19780 = £26,255 per year

Or Weekly

£600 - £124.51 = £475.49 taxable income per week.

£475.59 - 20% income tax = (£95.01p per week)

After tax you income for the week will be £124.51 + 380.48 = £504.99 per week)

National Insurance
As a self-employed person you should pay class 2 and class 4 National Insurance Contributions. If your earnings are below £5,075 a year you can apply for a certificate of exemption. This means you don’t have to pay National Insurance.
Above that amount you should pay £2.40 a week for class 2 contributions.

52 x 2.40 = £124.80 per year.

You should pay class 4 contributions equal to 8% of profits between £5,715 and £43,875.

In your case

Yearly

After Tax you will have £26,255 per year so to work out NI

£26,255 – £5,715 = £20,540

£20,540 / 100 = £205.40p

£205.40 * 8 = £1643.20

£1,643 + 124.80 = £1768 the Total National Insurance you pay per year.
Leaving you with £24,487 per year

Weekly

After Tax you will have £504.90p per week so to work out NI

£504.90p – £109.90p = £395

£395 / 100 = £3.95p

£3.95 * 8 = £31.60

£31.60 + 2.40 = £34 the Total National Insurance you pay per week.
Leaving you with £470.90p per week.

[FONT=&quot]From what I have read you only pay tax and NI on your Profits, not your expenses, just make sure you keep any receipts or ask the business for a petrol credit card, where they can be billed directly for your petrol.

Also remember on April 6th 2011 the tax free allowance will rise from £6,475 to £7,475 and I think NI goes up 1%

Hope this helps

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inmypocketnottheirs

See an accountant.

Hammyman

markbass wrote: »

Ok sort of sinking in now, are there any dodges..ie: things i can claim back on? and also surely the petrol this company reimburse me with at the end of every week isn't liable for the 30%?

and what if the job only lasted 5 months, would i have to pay everything i had save imediately after the job had stopped, because i might want to work for someone else as a normal employee at some point or my self employment might stop for other reasons.

The petrol you count as income and claim mileage allowance at HMRC rates which will leave you better off.

If it only lasts 5 months, you won't have to pay anything until the January after the end of the current tax year. So say you start now, you'd get a self assessment form in April 2011. Any tax owed is due by 31 Jan 2012.

Savvy_Sue

markbass wrote: »

And do i really have to put away 30% for tax and insurance each time i'm paid? thats absolutely horrendous, i never dreamed it would be that high!

When I've needed to do a 'rough'n'ready' calculation of what my take home pay as an employed person will be, I've always just taken 25% off. I've never been far wrong.

That extra 5% covers you for the extra NI, and is being on the safe side. BUT better be on the safe side with HMRC. Some of it will be going out at 3 months intervals for your NICs, and the rest will continue to gain interest.

markbass wrote: »

Just to add, i will have to invoice the company i'm working for each week with petrol expenses along with the daily rate i'm being paid for the amount of days i've worked that week, the money is good it works out to over £600 a week working 5 days but some weeks i think there could be only 3 or 4 days work for me, still works out to be fairly good money but i never figured on paying 30% of that out on tax and inurance, that seems a heck of a lot more than a person would pay being employed by a normal employer.

See, when you're self-employed you also need to factor in that you DON'T get paid when you're sick, you DON'T get paid when you're on holiday, you DON'T get paid when there's no work. What looks like good money isn't necessarily.

So as well as that 30%, you'd need to put away another 12.07%, just to cover the legal minimum holiday entitlement. When you're self-employed you don't HAVE to to take any holiday, of course, but generally it does us good to do so.

And as for sickness, who knows?

Also I really would recommend that you check that HMRC agree you are self-employed rather than employed.

Savvy_Sue

Oh, and just to check, you don't have student loan repayments to make do you? That's another thing you need to set aside ...