Universal Credits - Self Employed

Sixer

I think also there's another conflation people make in this debate. I wouldn't disagree that there are a number of self-employed people whose tax returns don't accurately represent their income (ie there is income they're taking "in cash", "as homers", "off the books" that they're not declaring"). This is why, for example, they brought in the Construction Industry Scheme, so self-employed subbies get some tax deducted at source and can't fib about their income.

I would say this is what gives the idea that one pays next to no tax if one is self-employed. People who tell the truth pay roughly the same tax as anyone else. There is little that can be claimed that is not a genuine business expense.

That some people falsify their tax returns shouldn't inform - and doesn't add anything to - the welfare debate. It's a crime issue, not a welfare issue.

princessdon

HappyMJ wrote: »

Technically that's not SE...that's working as an employee of the umbrella company. He would have been paying Class 1 NI on his income as an employee. Employees are only allowed a £4 weekly expense for working at home without having to provide proof by way of receipts. http://www.hmrc.gov.uk/incometax/relief-household.htm

If you understood a bit more about tax you could have worked through a limited company rather than an umbrella company and the company you own could have rented a room in your house for company business. It would become an expense to the company reducing profit and tax payable and would then be income for yourself split between the tenants or owners of the property and the tax due on that income could be offset by either including a portion of the rent you pay out or the interest you pay on your mortgage as an expense on your personal tax return.

Yeah I worded it badly, what I meant was that the differences on expenses between SE and "PAYE" are huge, more than the £4 a week you can claim as employed.

There are less tax breaks for employed and much less opportunity to cut taxation.

Sixer

princessdon wrote: »

Yeah I worded it badly, what I meant was that the differences on expenses between SE and "PAYE" are huge, more than the £4 a week you can claim as employed.

There are less tax breaks for employed and much less opportunity to cut taxation.

Did you read my post? I am self-employed and can claim 10% of my household bills, which come to £6 per week. HMRC originally suggested a flat rate of £3 to me when I asked them to agree a figure. I argued (which your husband can perfectly well do, too, it's not only self-employed people who can argue) against this on the basis that a) it wasn't enough and b) a flat rate wasn't satisfactory going forward in a climate of rising energy bills. 10% is based on a calculation of how many rooms in my house (not counting kitchen and bathrooms) and proportion of time my office is used as an office.

It's a complete myth that self-employed people can claim huge (and unjustified) expenses based on money they'd have been spending anyway, outside the business. A myth.

Blue22

MissMoneypenny wrote: »

What's happened to those "lots" of children you have, that you posted about before? And how can you be in your late 30s, if your lots of children are aged bewtween 19 and 31?





You also post a lot about how tax credits work and I assume that isn't because you work for HMRC as you have moaned about HMRC staff not knowing about tax credits? And as you have said above, you were "unable to work".

Lol I see you've been looking at my posting history. Well I guess the first thing you will have seen is that I have been consistent about wanting to support working families. No it won't effect me personally as I'm in my mid 50's and my kids are 'grown up' or as 'grown up' as they will ever get. BUT I want my children and their peers to be able to have families if that's what they want. Lots of posters on here of my generation, talk of how they brought their children up but didn't resort to benefits. Well take it from me they had it much easier then!

The first quote that you've highlighted above was from one of my recent posts, but I never attributed that quote to me. I explained in that post that I had just copied a message that I had seen on HPC. I don't know who wrote the original post but I just found it sad.

When my 'lots of children' (8 actually) were younger, no I couldn't work and wouldn't have wanted to. So I do have sympathy for SAHM's. I find it bizarre that the government pays a large contribution for childcare so that many Mothers of young children go back to work in low paid jobs. Ok it's fine if that's what the Mothers want but bloody stupid both economically and socially if the Mother would rather be at home with young children.

How do I know about the workings of tax credits and HMRC? Well as I said recently I have spent many years self employed so yes have had to understand the workings of income tax. And tax credits were around when my younger children were still dependent so again made a point of understanding them. I also spent a couple of years 'working' in a PAYE position for Welfare Rights.

So to sum up....I want to see working families supported. I think the current system is very unfair on sole income families and it does not support couples adequately, and I also feel that Mothers of pre school age children shouldn't feel pressured into returning to work when there is such a high level of unemployment and the sums just don't add up regarding childcare.

Non of my 'agenda' is motivated by personal gain, in fact I would be more than happy to pay extra tax if need be. I just want to see today's generation having the pleasure of an affordable family life like previous generations have. Don't you want the same for your children Miss Money Penny?

dktreesea

Sixer wrote: »

I think also there's another conflation people make in this debate. I wouldn't disagree that there are a number of self-employed people whose tax returns don't accurately represent their income (ie there is income they're taking "in cash", "as homers", "off the books" that they're not declaring"). This is why, for example, they brought in the Construction Industry Scheme, so self-employed subbies get some tax deducted at source and can't fib about their income.

I would say this is what gives the idea that one pays next to no tax if one is self-employed. People who tell the truth pay roughly the same tax as anyone else. There is little that can be claimed that is not a genuine business expense.

That some people falsify their tax returns shouldn't inform - and doesn't add anything to - the welfare debate. It's a crime issue, not a welfare issue.

SE people who tell the truth pay roughly the same tax as anyone else? Since when does telling the truth mean you get landed with a big tax bill?

You could have a self employed couple, with a couple of children. They make jewellery. Both work 30+ hours a week. They sell the jewellery a couple of times a month at craft fairs. After all legitimately claimed expenses - and fully declared revenue - , they net £5k a year. I put these figures into the benefits calculator on www.turntous.org.uk, with £1500 council tax and an LHA of £183 a week. Total value of the benefits returned? £22,811. Total income after tax: £27,811.

I recalculated this taking the proposed minimum wage floor into account, based on full time hours, say around £15k each. Remember, this is notional, not real, income. Amazingly, even with this as the gross income, so a lower notional net income, of around £12,800 each, they would still get benefits, but "only" £4,652 per annum, bringing their income down to £9,652 per annum.

Most SE people in microbusinesses, faced with this kind of income loss, are going to do what they need to do to protect their main income stream, because there isn't any way to increase their business profits sufficiently to actually earn £15k each profit per annum in their business line. For a whole host of reasons. No capital to invest, not enough selling opportunities, heavy competition in their chosen field limiting profits, can't afford to hire the extra space they would need to host an expansion (not everything is the size of jewellery) etc etc.

They will probably conclude that their best bet is to close the business down and go on the dole.

On the one hand I don't think this is such a bad outcome. If someone chooses to work for 80p an hour or some other miniscule amount that won't even meet their rent bill, let alone anything else, why should I pick up the bill for their shortfall? But on the flip side, I am pretty sure than many self employed people would struggle to get work in the PAYE employed sector. For a whole host of reasons:

- out of date skills,
- too old/disabled/unfit
- they don't "fit". People aren't likely to employ a 50 year old man to sell women's lingerie on the high street
- the employer doesn't believe they will be able to work under the thumb of a boss after being their own boss for so long
- there are better applicants to choose from (definitely likely to be the case in the current employment market).

The few people who are SE but not working hard enough at it will pick up their game and make up the shortfall. Maybe they have to tighten their belts for a while along the way, but they will probably start to make a proper living.

But most of the rest? I think they'll abandon their businesses and join the unemployment line. Good luck to Cameron and Co getting them jobs. Working for yourself can be a hard road to hoe. Maybe some of those people will enjoy going off to "prepare for work" meetings, and whatever other rubbish work providers who don't get many people into work dream up, for a while. Well, until they get bored out of their brains. But actually getting PAYE style work? This I will have to see to believe.

Sixer

dktreesea wrote: »

SE people who tell the truth pay roughly the same tax as anyone else? Since when does telling the truth mean you get landed with a big tax bill?

You could have a self employed couple, with a couple of children. They make jewellery. Both work 30+ hours a week. They sell the jewellery a couple of times a month at craft fairs. After all legitimately claimed expenses - and fully declared revenue - , they net £5k a year. I put these figures into the benefits calculator on www.turntous.org.uk, with £1500 council tax and an LHA of £183 a week. Total value of the benefits returned? £22,811. Total income after tax: £27,811.

You've so completely missed my point, it's worrying.

I said that self-employed people pay comparable tax on their earnings to employed people. An employed person earning £5k per year wouldn't pay any tax either!

The self-employed and the employed have exactly the same tax thresholds and percentages to pay. When similar expenses occur for a self-employed and employed person (ie business mileage in a personal car, use of home as office), HMRC doesn't distinguish between the employed and the self-employed person. That's entirely irrelevant. They couldn't give a toss about employment status. Their only interest is in what expense or proportion of expense has been legimately incurred for business reasons.

It's a myth that self-employed people pay less tax on the same income/profit as an employed person. They pay exactly the same. Provided their return is truthful, that is.

It's the same myth as the one people believe about singletons or childless, healthy couples being able to enjoy a good standard of living - holidays, fags, booze, flat screen TVs - on the dole. No, they can't. Unless they're in hock to loan sharks or breaking the law in some other way (working for cash, dealing, etc).

HappyMJ

Sixer wrote: »

You've so completely missed my point, it's worrying.

I said that self-employed people pay comparable tax on their earnings to employed people. An employed person earning £5k per year wouldn't pay any tax either!

The self-employed and the employed have exactly the same tax thresholds and percentages to pay. When similar expenses occur for a self-employed and employed person (ie business mileage in a personal car, use of home as office), HMRC doesn't distinguish between the employed and the self-employed person. That's entirely irrelevant. They couldn't give a toss about employment status. Their only interest is in what expense or proportion of expense has been legimately incurred for business reasons.

It's a myth that self-employed people pay less tax on the same income/profit as an employed person. They pay exactly the same. Provided their return is truthful, that is.

It's the same myth as the one people believe about singletons or childless, healthy couples being able to enjoy a good standard of living - holidays, fags, booze, flat screen TVs - on the dole. No, they can't. Unless they're in hock to loan sharks or breaking the law in some other way (working for cash, dealing, etc).

Self employed people pay less tax overall than employed people. The percentages are not the same. Can you disprove the myth?

Take National Insurance. An employer has to pay class 1 contributions on the wages of an employee's wages paid above the secondary threshold (currently £144 a week) of 12.8%. The employee also has to pay class 1 contributions of 12% on wages earnt above the primary threshold (currently £146 per week). For a small business (sole trader) taking on a full time member of staff for 37.5 hours per week on minimum wage (£6.19) the total NI due would be £11.28 in employer contributions and £10.33 of employee contributions. The employee would also pay income tax of £15.25 and take home £206.55 per week. The shop (small business whatever) would have to make a profit of £243.40 per week to cover the cost of that employee. If the owner did the work themselves instead maybe by getting a partner involved in the business as a co-owner and made exactly the same profit then they have to pay class 4 contributions of 9% on the profit above the lower profits limit (currently £7,605 per year). They would then pay £8.75 per week in class 4 contributions and £2.65 a week in class 2 contributions and pay income tax of £17.50 and therefore take home £214.50 per week. An increase of 3.8% based on the same work and same profit generated as a PAYE employee.

Blue22

HappyMJ wrote: »

Self employed people pay less tax overall than employed people. The percentages are not the same. Can you disprove the myth?

Take National Insurance. An employer has to pay class 1 contributions on the wages of an employee's wages paid above the secondary threshold (currently £144 a week) of 12.8%. The employee also has to pay class 1 contributions of 12% on wages earnt above the primary threshold (currently £146 per week). For a small business (sole trader) taking on a full time member of staff for 37.5 hours per week on minimum wage (£6.19) the total NI due would be £11.28 in employer contributions and £10.33 of employee contributions. The employee would also pay income tax of £15.25 and take home £206.55 per week. The shop (small business whatever) would have to make a profit of £243.40 per week to cover the cost of that employee. If the owner did the work themselves instead maybe by getting a partner involved in the business as a co-owner and made exactly the same profit then they have to pay class 4 contributions of 9% on the profit above the lower profits limit (currently £7,605 per year). They would then pay £8.75 per week in class 4 contributions and £2.65 a week in class 2 contributions and pay income tax of £17.50 and therefore take home £214.50 per week. An increase of 3.8% based on the same work and same profit generated as a PAYE employee.

So the employed person is contributing about £8/week more because they pay different classes of NI. But am I not correct in saying that he will receive about £50/week in S2P when he retires that the SE person will not be entitled to.

HappyMJ

Blue22 wrote: »

So the employed person is contributing about £8/week more because they pay different classes of NI. But am I not correct in saying that he will receive about £50/week in S2P when he retires that the SE person will not be entitled to.

With good tax planning a SE person could contribute into a private pension minimizing a tax and national insurance liability and have half the contributions allowed as an expense for benefit purposes increasing the amount of benefit available. i.e they could* declare a very low income and claim maximum working and child tax credits, housing and council tax benefit.

*(could)---not saying that they would do it but it is available. http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/rr2-a-guide-to-housing-benefit/working-it-out/income-and-capital/

Sixer

HappyMJ wrote: »

Self employed people pay less tax overall than employed people. The percentages are not the same. Can you disprove the myth?

Take National Insurance. An employer has to pay class 1 contributions on the wages of an employee's wages paid above the secondary threshold (currently £144 a week) of 12.8%. The employee also has to pay class 1 contributions of 12% on wages earnt above the primary threshold (currently £146 per week). For a small business (sole trader) taking on a full time member of staff for 37.5 hours per week on minimum wage (£6.19) the total NI due would be £11.28 in employer contributions and £10.33 of employee contributions. The employee would also pay income tax of £15.25 and take home £206.55 per week. The shop (small business whatever) would have to make a profit of £243.40 per week to cover the cost of that employee. If the owner did the work themselves instead maybe by getting a partner involved in the business as a co-owner and made exactly the same profit then they have to pay class 4 contributions of 9% on the profit above the lower profits limit (currently £7,605 per year). They would then pay £8.75 per week in class 4 contributions and £2.65 a week in class 2 contributions and pay income tax of £17.50 and therefore take home £214.50 per week. An increase of 3.8% based on the same work and same profit generated as a PAYE employee.

This is precisely what I mean by posters conflating business expenses (in this case the payroll tax of employers NI) and earnings. This is genuine business expense involved in employing someone, which reduces the profit of a business. The profit of a self-employed person's business is their income, which equates to the gross pay of an employed person.

You can't use this to suggest self-employed people pay less tax on their money than employed people do. It's two completely different things.

Yes, there are very minor differences in NI contributions between the classes. But income tax is EXACTLY THE SAME for an employed and self-employed person, once business expenses are removed. It's just that employed people have few, if any, business expenses. When they do have them - laundering their uniforms, use of home as office - each type of earner is treated EXACTLY THE SAME. See Princessdon's OH and myself for use of home as office, for example. Yet Princessdon labours under the completely false impression a self-employed person would get a bigger tax allowance for exactly the same expense as an employed one.