Self Employed, Earning less than £5,000 a year.

AndyL127

Greetings!

Having just finished school, I have decided to undertake some property maintenance work (painting/cleaning/gardening) for 2/3 different people within my local area. I have agreed to work for £50 a day + materials cost. I have recently (last week) declared myself self employed.

I have a few questions for you guys.I'm not going to be making huge amounts of money (am only planning on working 3 days a week at the moment whilst I learn to drive and enjoy not going to school everyday, may even do a bit of travelling.

Question 1) I'm going to be paid mostly in cash, I will happily pay this in my bank account. But will the HMRC wonder what I do when I'm not working? Earning approx £5000 a year must make them think I'm earning more and just not declaring/ accounting the money? This would be a nightmare for me as I am trying to do everything legitimate as I would like to learn the ins and outs of bookkeeping as I feel it would be valuable and positive on my CV.

Question 2) The work I'm undertaking for the next few months is for the same 2 elderly pensioners one of which is my grandmother who has asked me to work 1 day a week for her for until all her work wanted to be done is done (could take months) are the HMRC bothered about this? Or are they happy aslong as all the money earnt from whoever is properly accounted for?

Question 3) one of the elderly women has requested she buy all the equipment for me so she knows what she is paying for. (She only wants to play my labour time basically) on her invoice I give her, and the one I keep for myself do I just put labour time and that's it. Would this be acceptable to the HMRC? Or are they expecting to see a long list of things I purchased to do the job?

Question 4) on my tax return in April, is there any point in claiming expenses if I don't earn over the personal allowance amount of £8000? On my tax return would I just fill in my earnings for the year say £5000? Would there be any point claiming tax expenses when I wouldn't be paying any tax in the first place? In which case, is there any point saving receipts for the odd pots of paint here and there?

Question 5) How hard is it to fill in my tax return in April?

to clarifry,

- I have already applied for self assessment. I have been informed I i will be receiving my unique tax paper reference code soon.

- I have never filled in a self assessment tax return (little nervous about that)

- I have never written an invoice or kept accounts, seeing as its going to be such a small business I don't want to pay an accountant.

- This is my only form of income, where I live jobs are not very common.

- I plan to bill my customers monthly for the ones that require my services week in week out. Is this advisable, or is weekly better?

- I currently live at home, therefore my living costs are substantially lower than If I had my own flat.


Thanks for reading! I look forward to your answers!

I am new here, so if I have posted this in the wrong section feel free to move it!

PlutoinCapricorn

It is best to take this point by point, so you can digest the information at your convenience.

Your first tax return will apply to the tax year April 6th 2012 to April 5th 2013. You will be able to complete your return between sometime in April next year right up to Jan 31st 2014 if done online. Filing online is highly recommended: it is easier and safer.

This gives you plenty of time to learn about expenses etc: HMRC do free courses on expenses and completing tax returns. It would be good if you could take their courses.

Where completing your tax return is concerned, it is best to give the real picture of the business, even if you have not earned enough to pay tax.

There are two boxes that you can complete: one about your financial life and one about your self employment. The first one is where you can put that you can live on such a low income because ..... this may stop them deciding to enquire about your affairs.

Do keep all the records and receipts, just in case.

PlutoinCapricorn

Many people who start self employment assume that they will have to send all the paperwork to HMRC: bank statements, receipts etc. This is not the case: you just need to supply three figures when you complete the tax return. You do need to keep the evidence just in case though. It would help if you paid all money received into a bank account, and the amounts tie up with invoices.

The returns are automated, and they will not all come and have a look at your figures and wonder why one client just charged you for labour! If the client supplies the paint etc.

What are you doing about National Insurance? You are entitled to claim exemption from paying Class 2 on the grounds of small earnings, but then you will not be entitled to certain benefits.

AndyL127

PlutoinCapricorn wrote: »

There are two boxes that you can complete: one about your financial life and one about your self employment. The first one is where you can put that you can live on such a low income because ..... this may stop them deciding to enquire about your affairs.

Interesting, Thanks for the reply. These 2 boxes, are they on the self assessment tax return? or are they completely separate?

I plan to keep things as simple as possible, I have an account I am only going to use for business, If I can make 400/500 a month over the winter i'll be happy and it'll give me enough money to afford to drive/pay my parents rent etc!

I appreciate your responses, its put my mind slightly at ease. One reason I wanted to be self employed was so I could explore other hobbies and interests (learning to drive, sports etc) at my own leisure whilst i'm young. Hopefully making work, work around me, rather than the other way around! Ideally anyway!


With regards to national insurance, I have been advised I will be billed every 6 months, I believe I will be paying £2.80 a week, I know I am able to get a exemption certificate, however I have not looked further into this. Would you advise it?

InsertWittyName

For the pittance is it each week, I'd just pay the Class 2 NIC.

AndyL127

To clarify, My self assessment tax return will be out around april 2013 time, then I have till January 31st 2014 at the latest to return it if done online?

If this is correct...that's along time, however as already mentioned does give me adequate time to learn about bookkeeping!

PlutoinCapricorn

The two boxes I mentioned are on the tax return. You will get a reminder to complete one, and yes, you have around 10 months to complete it. It is best to get it over early though.

You can play around with the online form and only submit it when you are happy it is ok. Even then you can amend it later. You get guidance notes for each box, and the MSE community will be happy to help.

You can keep a simple spreadsheet: income received month by month on one page, expenses month by month on another.

Many people choose to pay Class 2 NI via monthly direct debit.

Savvy_Sue

InsertWittyName wrote: »

For the pittance is it each week, I'd just pay the Class 2 NIC.

I'm not sure it's worth it: it doesn't sound as if the OP's going to make enough contributions in the current tax year to be worthwhile. And next tax year it doesn't sound as if he's planning to work a full year either. If he's just left school he won't have paid any NI yet.

IF this was a long term plan, then yes, start paying now, regardless. For a short term spell of self employment, save the money.