Working from home - Banking and claiming expenses

BronzeMarkymark

My wife has just started freelance proof reading, working from home after spending a period of time bringing up our children......obviously she is still taking them to school, picking them up and doing 1000 other things that mothers do during the day so we have worked it as a part time job working 16 hours a week........and she loves it.......

She is working for a company as a self employed proof reader (she previously worked fulltime for them) and basically there is a server full of work for her (and others to do) depending on how much she does and what type of work it is dictates what she gets paid.......

Now for the questions........

For budgeting etc we have put it as a minimum wage job at 16 hrs, so the pay per month comes in at around £450 a month, thing is at the moment she could actually earn £900 this month......all sound good but next month it could be quiet and there might only be £200 worth of work........next problem, she is seriously going to struggle to put the hours in during the school holidays, which means she may get no work done at all.....

Can we set up some form of business account, to pay her.......basically if she earns £900 this month, pay this into a business account and then the business pays her £450, then if next month is quiet or she can't work due to kids being home, the remaining money can be payed out next month as next months wages of £450......so basically stockpiling money in a Company/Business account for when she can't work or the work isn't there to do.......hope that makes sense......

Next bit is the expenses, she currently only has a PAYG mobile but wants to upgrade to a contract phone, can this be paid for by the company or claimed as expenses (90% of use would be work related)........

Also such things as Internet connection and general household bills such as electricity and gas, think these can be claimed as a percentage but not sure what percentage, also she has a laptop that is totally dedicated to work, can this be claimed for.....to be honest any info on what can be claimed would be great........

Any help and info greatly appreciated......

InsideInsurance

As someone who is a sole trader then all the profit she makes is hers as there is legally no "company". If she wants to keep it in a separate account and ration herself on how much she draws down then she can do that but she will get taxed on the complete profit even if she hasnt drawn down the money from her account.

You can claim expenses for things that are purely business. The more you claim the more likely you are to trigger HMRC coming to audit you. If it truly is the case than 90% of the mobile is business then that is the percentage you'd charge from the line rental.

Household bills are something that accountants have differing views on. A laptop generally costs less than £5 a year to run so isnt worth considering. Some accountants will warn you against household costs, especially if its part of the rent/ mortgage, because HMRC have gotten smart with these things and if you claim 10% of your rent because one room is business only then they check that you have informed the council and are paying appropriate business rates, have the appropriate planning permission etc.

Other accountants say to claim a very small token amount and you should fly below radar. Personally, for the sake of £5 a month, I dont think its worth a HMRC investigation (though the chances are small)

BronzeMarkymark

Thanks for that.........

The advantage that she does have and what we have been looking at is that she can request what payment she wants each month from the company, so if she has £900, she can request a payment of £450 and leave the rest with them till she wants to draw again......obviously the money isn't classed as a wage until she draws it and pays it into her bank account..........

We are trying to average the wages over the course of the year, so that she doesn't have to work school holidays but will still technically get paid for that time, basically a paid holiday and then whatever is left will be drawn as one lump sum just before xmas, her own xmas bonus......

Don't think I am going to worry too much about the expenses, we are only looking at her earning around £5500 in her first year and depending on how it works that might be increased to about £8000 next year......

InsideInsurance

BronzeMarkymark wrote: »

obviously the money isn't classed as a wage until she draws it and pays it into her bank account

She is self employed not an employee, she doesnt get wages.

Our tax system works on an accrual basis and so you have to pay tax on it from the day you invoice for the work not the day you actually get paid. Only if the invoice goes unpaid do you then bad debt the monies in which case you remove it from your tax liabilities.

The fact she isn't drawing down doesnt make any difference because she, presumably, is still invoicing for the work done in some format or another.

If she holds off invoicing until it gets to a certain amount or such then that may be a possibility but I dont know how that (a) sits with the tax man and (b) if I would trust a client to pay if I am somewhat randomly invoicing for work completed

Mistral001

BronzeMarkymark wrote: »

she wants each month from the company,

I think we need to know if an actual Company such as a Ltd company been set up. It appears that there is but not asolutely sure. Or is that the company she is freelancing to that you are referring to?

Annisele

BronzeMarkymark wrote: »

For budgeting etc we have put it as a minimum wage job at 16 hrs, so the pay per month comes in at around £450 a month, thing is at the moment she could actually earn £900 this month......all sound good but next month it could be quiet and there might only be £200 worth of work........next problem, she is seriously going to struggle to put the hours in during the school holidays, which means she may get no work done at all.....

I don't entirely understand why that's a problem - but if I did I think it might be easier to suggest a solution.

Is the irregular income causing a problem with a benefits/tax credits claim? Do you think it's causing her to pay more tax? Or are you worried she'll spend all £900 this month and then you won't have any money in the holidays?

I'm assuming your wife is self employed, and that she's responsible for her own tax and national insurance - is that right? She doesn't get payslips, and no tax is deducted before she gets the money?

Savvy_Sue

BronzeMarkymark wrote: »

The advantage that she does have and what we have been looking at is that she can request what payment she wants each month from the company, so if she has £900, she can request a payment of £450 and leave the rest with them till she wants to draw again......obviously the money isn't classed as a wage until she draws it and pays it into her bank account..........

If she sets up a ltd co she can pay herself a regular wage, but there will be a lot more hassle.

Why not have her s/e earnings paid into an account in her name which is only used for that, and set up a standing order from that account to which a/c you pay the bills from?

If it's problems with claiming benefits you're concerned about, then it is more complicated, and you probably need to grit your teeth and work through it. Having a buffer is very worthwhile if your benefits include Housing or CT Benefit ... which means NOT spending money you know you WILL have to pay!

BronzeMarkymark wrote: »

Don't think I am going to worry too much about the expenses, we are only looking at her earning around £5500 in her first year and depending on how it works that might be increased to about £8000 next year......

Then in that first year she could ask for a Certificate of Exemption from paying NI from HMRC for her first year, but she needs to cancel it for her second year. (I'm assuming she's getting Child Benefit in her name.)

Worth thinking about the expenses: they are taken off her income from self employment to reduce any tax liability, if she ends up working more than she expects it might make the difference between paying tax and NI this first year and not doing so.

Phone: I'd consider having one for work and one for personal use, TBH. If it's going to be about 90% work, then being able to switch off can be exceedingly useful!!!