Re: Martin's Freelancer Message - HELP!?

Pebbles39

I've just read this article and am not sure if this applies to me....(?!)

I've been a freelancer (from home and at an office) for the last 3 years while at home with children, but haven't earned more than #100 (pounds) per week during that time (I have invoices for this time period)...

Do I need to register self-employed anyway....etc (I don't and haven't claimed any benefits eg job seekers, apart from Maternity Grant for first child and receive the usual child benefit with very little child tax credit...)

I doubt that I will be earning any more than #100pw in the future...advice needed!!!!

Thanks!
Px

Notmyrealname

Yes you do need to register as self employed. You need to register as soon as you start taking money regardless of whether or not you even make a profit. You have actually been breaking the law for the past three years from the very first time you took a payment. The fact you've not earned enough to pay tax is completely irrelevant. You've not been paying Class 2 NIC which you had to as well.

Did you inform tax credits of the self employed income? If not then there's benefit fraud to add to the list - if you're already getting reduced child tax credit because of your OHs income then your S/E income would have lowered that even further or possibly ended it altogether.

This all has the potential to become very messy with fines for not registering, fines for not filing a tax return in the two years you had to, a tax bill if you don't have a set of books and proof of income/expenses which will be based on the average profit of the same type of business in your area and repayment of all income based benefits you've got in the 3 year period. You could potentially face a charge of tax evasion.

I'm not going to offer advice on how to get out of this because to be honest, I wouldn't know where to start for the best - maybe a tax accountant might be able to help get you out of this mess with a minimal cost in fines etc. I can't see how you're going to get out of this without it costing you a fair few quid though, especially if DWP decide you have to repay all the tax credits you've got for the past 3 years.

I would say that you need to get every receipt and every invoice you've both sent and received together and do a complete full set of books for each tax year. All I will say is that if HMRC decided to audit you, a HMRC audit is so bad that you can actually get insurance policies to cover the cost.

KiKi

So in three years you've never declared your self employment, nor completed a tax return with HMRC?

Yes, you need to do this ASAP. You may not earn enough to pay tax but it still needs to be declared. You will be exempt from Class 2 NICs if you earn below £5315 in a year, and only have to pay Class 4 and income tax if you were to go over the thresholds for those (currently £7475 for income tax, and 9% over £7225 for NICs - which goes down to 2% once you hit higher earnings).

But as this is proper self employment, not just a bit of pocket money as a one-off, you need to declare it and need to call them to sort it out ASAP, as in any year you could go over the threshold if you took on a bit more work, and it will have an impact on benefits.

If you don't earn enough to pay tax and NI, though, you don't need to put the 30% aside (re Martin's article). But hopefully someone else very knowledgeable will come along and be able to confirm what I've said.

You also want to be sure that the job you're doing (is it for one client only?) is a freelancing role and not an employed role; neither you nor the company make the decision, it's HMRC's rules on that. Check their website to see the 'qualifying' questions on whether or not a role is considered 'employed' or 'self employed'.

You probably need an accountant to help you out of this one; either that, or an understanding HMRC advisor! But take action now and be ready to explain why you haven't declared it already.

HTH
KiKi

SLAYFIELD1

.... Just register now and don't tell them about the previous three years.

Pebbles39

Hi KiKi - thanks for your reply - in the majority of months I barely got #50 per month so was so little I didn't think would qualify but appreciate both yours and the other posters point ......

It's only been in the last 3 months that things have picked up considerably - I looked at the NI website info recently and saw the weekly limit so thought I was OK - the child tax benefit is and always has been about 42 a month and is the only benefit apart from the standard Child benefit that we receive... the only documentation that I have are invoices and bank statements showing payment.... crikey....

Thanks for your info...

Px

Sambucus_Nigra

Pebbles39 wrote: »

Hi KiKi - thanks for your reply - in the majority of months I barely got #50 per month so was so little I didn't think would qualify but appreciate both yours and the other posters point ......

It's not their point - it's the law's.

smartpicture

Some of that sounds a bit scary. Just to give you a real-life example though, my friend was very similar to you, self-employed for several years except earned quite a lot more money than you and should definitely have been paying tax. Eventually she got brave enough to visit an accountant who put all the figures together, then approached HMRC and she had to pay the tax due, plus interest, plus a 10% penalty, and they were very nice and helpful to her. So not too bad - although she did have the money to pay it, might have been different if not but in your case I guess there won't be any money due.

want-it-all

Notmyrealname wrote: »

Yes you do need to register as self employed. You need to register as soon as you start taking money regardless of whether or not you even make a profit. You have actually been breaking the law for the past three years from the very first time you took a payment. The fact you've not earned enough to pay tax is completely irrelevant. You've not been paying Class 2 NIC which you had to as well.

Did you inform tax credits of the self employed income? If not then there's benefit fraud to add to the list - if you're already getting reduced child tax credit because of your OHs income then your S/E income would have lowered that even further or possibly ended it altogether.

This all has the potential to become very messy with fines for not registering, fines for not filing a tax return in the two years you had to, a tax bill if you don't have a set of books and proof of income/expenses which will be based on the average profit of the same type of business in your area and repayment of all income based benefits you've got in the 3 year period. You could potentially face a charge of tax evasion.

I'm not going to offer advice on how to get out of this because to be honest, I wouldn't know where to start for the best - maybe a tax accountant might be able to help get you out of this mess with a minimal cost in fines etc. I can't see how you're going to get out of this without it costing you a fair few quid though, especially if DWP decide you have to repay all the tax credits you've got for the past 3 years.

I would say that you need to get every receipt and every invoice you've both sent and received together and do a complete full set of books for each tax year. All I will say is that if HMRC decided to audit you, a HMRC audit is so bad that you can actually get insurance policies to cover the cost.

I agree with most of what you say, but OP wouldn't be in trouble with the DWP. It's HMRC who administer Tax Credits, and HMRC take a very different approach to 'benefit fraud' than the DWP and Local Authorities. And as for Class 2 NICs, they may not have necessarily been due, because of the very low income in question.

But, OP, get registered ASAP if you are to continue with S/E. Remember it can affect your Tax Credits, too, as detailed above. If you're earning £50 per month, but receiving CTC of around £42 per month, then your CTC may evaporate.

Because of Tax Credits implications, it may be an idea to get rid of your S/E venture altogether, unless you can make it pay considerably more than your current CTC does.

persa

Hi Pebbles,

It may not be as bad as you think.

If you were genuinely self employed, you should have told HMRC as much within three months of beginning to trade. Assuming really low levels of profits, you wouldn't have had any tax or Class 4 NI to pay and you could have qualified for a small earnings exception from Class 2 NI.

If you didn't deliver a tax return every year, you wouldn't have any paid any penalties, due to there being no tax payable, with the exception of your 2010/11 return, which would have brought you a flat rate penalty for the first time.

Tax geared penalties are based on a percentage of the tax you should have paid to HMRC and didn't - if you didn't owe any tax, 100% of nothing is still nothing.

Quite separately, you do have an obligation to keep adequate paperwork to fill out your returns, but if you haven't done all that much and there wasn't reams of paper to throw away, maybe you still have it all?

Yes, you are in a bit of a muddle and it cannot continue, but if you confess all to HMRC before they come knocking on your door, the penalties may not be nearly as scary as the other posters have implied. You're not going to get out of paying a £100 penalty for this year's return, that's for sure, but HMRC may well let you off the rest if you plead ignorance and promise to sort things out and deliver returns within an agreed timescale.

Now, if you bury your head in the sand, HMRC are likely to impose every penalty on you that they can think of - yes, they won't be able to hit you for tax geared penalties, but they could make you pay Class 2 NI for those periods where you didn't bother filling out the right paperwork, they could fine you £3k for keeping rubbish records, etc, etc. The majority of HMRC officers are not horrible people and they do tend to recognise where someone has messed up due to ignorance rather than deliberate intent. Seriously, hold your hands up and promise to be good going forwards! You'll feel better for it and they will be kinder to you.

You need to notify them that there's a problem, asking for time to sort things out and if you are not confident in your ability to do this, engage a tax adviser - find a smaller firm (or even sole practitioner), point out you're on very little money and negotiate a fixed fee for dealing.

I can't comment on the benefits issue - really not my area of expertise - but if you can't get a more definitive answer on this board, there is a specific benefits board with far more knowledgeable folk there. And in any case, if there is an issue, you will still have to deal with it sooner or later. May as well be sooner - I bet you've been feeling awful since you realised your tax affairs might be on dodgy ground. Face it head on and that horrible feeling will soon subside.

KiKi

Pebbles39 wrote: »

Hi KiKi - thanks for your reply - in the majority of months I barely got #50 per month so was so little I didn't think would qualify but appreciate both yours and the other posters point ......

Not my point, it's how the law sees it!!! It's also not about 'qualification' - you may not need to pay tax, but you have to declare all earnings, anyway.

...saw the weekly limit so thought I was OK

As before, nothing to do with not earning enough. You have to declare all money you earn to HMRC; they will see that you don't earn enough for tax and therefore not send you a bill, but you still have to tell them.

the only documentation that I have are invoices and bank statements showing payment.... crikey....

Don't panic. HMRC are generally very good if you go to them first and explain your situation. They will help you get it sorted, and if it was only £50 a month until recently, that makes things a lot easier as you're less borderline, and considerably under the thresholds. The fact that you didn't earn enough to pay tax will help, but you do need to tell them, and explain that you're sorry, you didn't realise, and you want to get things in order now.

All you need is invoices and bank statements anyway - and chances are they won't want to see them. What they will probably ask you to do is complete a tax return for each of the previous three years - or possibly only ask you for total money earned and total expenses for each financial year. (Obv if you can't back up expenses with documentation, then don't put any in.)

Call tomorrow, tell them the situation; as long as you're proactive they will look to help rather than penalise (I've been there and done it with them!!), and it will be a huge weight off your mind.

HTH
KiKi

KiKi

Oh - and if it really is that small an amount with no expenses, you don't need an accountant. Do it yourself, much easier. You can always ask questions on here - but don't delay with this, that's the main thing.

KiKi