Employed by close relative NI and Tax Implications

tazziegirl_2

Hello

I wonder if anyone will be able to advise me on what tax and NI contributions I'm liable for whilst being employed by my mother.

I'm registered as self-employed and have a fixed monthly income from my mother as her carer. I live in her house.

I've been paying my Class 2(or is it 1?!) quarterly. Am I liable for Class 4 NICs? I assume I'm also liable for 20% on income, what sort of deductions can I make. I go shopping for her/me can I claim mileage on that?

Many thanks for any input

Murdina

First of all watch your terminology. You are not employed by your mother - you are a self employed carer whose services she is using.

Since being employed or self employed is a matter of fact, not choice, you do need to watch how things are working eg have a brief contract making it clear you are providing services and ideally have the right to send along a substitute in your place if you are not free (and if possible actually do this - you should pay the substitute and your mum should pay you). Being able to send a substitute is a really good marker for self-employment.

Make sure you invoice your mum formally and that she pays you based on the invoices.

You are paying class 2 NIC - class 1 is for employees. As a self employed person you need to do self assessment returns and based on the self employed income you show on those you not only pay income tax but class 4 NIC at 8% over the threshold - this is just an extra tax and gets you nothing in terms of pension benefits etc

You can claim a deduction for any expenses you incur wholly and exclusively to carry out your trade as a carer. If you use your car keep a record of all the expenses and of business and private mileage and you claim the business proportion of all expenses. Or else just record mileage and claim a straight 40p a mile for 1st 10,000 miles.

You can claim for phone costs and anything else re your business.

tazziegirl_2

Thanks for your reply Murdina.

I do have a basic contract, which I got my solicitor to draft out.

I don't have subsitutes that I pay myself but I do have additional help from a care agency, due to my mothers needs, which she pays for directly.

How does class 4 NIC work? I understand that its based on profit. Now, I don't make any sort of profit and I'm not doing this for a profit.

Would it be better if my mother employed me? Although she lacks the capacity to deal with something like that...

YORKSHIRELASS

Hi, I think you need to do some more research on whether you should be self employed or not. HMRC would expect a self employed carer to be working for several different clients and if this is not the case then I think your mother should employ you.

chrismac1

Self-employment versus employment:

The key 3 three tests are - per the Courts not HMRC who, shall we say, are a tad biased:

1. Direction & Control
2. Substitution
3. Ongoing offer and acceptance of work.

There are other tests, PM me for fuller details. Based on your post you are OK - you probably fall down on test 3 but are OK on the other 2.

Class 4 NICs - you pay 8% on your taxable profits above 5,715 in the 10-11 tax year.

There are probably quite a few allowable deductions you can make to get your taxable profits down quite legitimately - 20% tax on the taxable profits above 6,475.

tazziegirl_2

Thanks for those replies very helpful.

I've actually just phoned the status line and they tell me I should be classed as employed. So I will need to register my mother as an employer, or should I get a relative to register and deal with it? My brother and I have POA but he's not going to be around much in the coming year.

Does anyone know if its a problem if I backdate the commencement of employment to the start of the financial year? I'm still registered as self-employed so should I do my return as self-employed up until December 31 (Pay day) and then say my employment starts 1st Jan 2011 or can I say I went employed at the start of the financial year 2010?

tazziegirl_2

chrismac1 wrote: »

Self-employment versus employment:

The key 3 three tests are - per the Courts not HMRC who, shall we say, are a tad biased:

1. Direction & Control
2. Substitution
3. Ongoing offer and acceptance of work.

There are other tests, PM me for fuller details. Based on your post you are OK - you probably fall down on test 3 but are OK on the other 2.

Class 4 NICs - you pay 8% on your taxable profits above 5,715 in the 10-11 tax year.

There are probably quite a few allowable deductions you can make to get your taxable profits down quite legitimately - 20% tax on the taxable profits above 6,475.

Unfortunately I can only see a weekly trip to the supermarket and a couple of phone calls a month as deductions in my case, which isn't gonna make much of a dent in my bill.

Do you know how they do the calculation on NI and Tax?

Is it:
my salary-deductions-personal allowance = profit which is taxed at @20%

then the same profit total - 5715 then taxed @ 8%

I'm just doing my self assessment and the final calculation is sending me into panic mode.

Many thanks