How to pay tax?!?

sparklyjojo

Hello everyone,

My husband started a new job at the beginning of April. He is a college tutor - but he is being paid hourly on a "freelance" basis.

We have never had to sort out paying our own tax and NI contributions before - so we have no idea how to go about doing this.

I've spent hours going round and round in circles on the HMRC website, but the more I look, the more I'm confusing myself!

Please can anyone help me work out:
1) What we need to do to tell HMRC that he is working as a freelancer?
2) Roughly how much we should budget to put aside for tax & NI each month?

The details of his employment are as follows:

25 hours per week @ £20 p/h
This is his only job
Some weeks he may work more than 25 hours, as overtime - but same hourly rate as usual (£20 p/h)
The job is not permanent - he is teaching 10 week blocks at a time with a 2 or 3 of weeks (unpaid) in between each block of 10 weeks.

I (his wife) am employed full time, but all my tax and NI contributions are sorted by my employer, and taken before my wages go into our account each month.

So grateful for any help guys. We're not looking for anyway to try and get round the system - we want to fully pay what we owe. We just don't know where to start in actually doing that!

We have 1 bank account that we share.

Thanks in advance.

Two4Tuesday

He might want to look at umbrella companies. They become your employer and handle all of the tax and NI for you, taking a fee from his £25 per hour rate of anything between 5% and £30 per week.

I use an umbrella company as it saves me a lot of hassle.

tiger_eyes

I don't think this is complicated enough to need an umbrella company. This is a quick summary - any corrections from anyone?

1) Register self-employed via the HMRC website.
2) Consider putting aside at least 20% to cover taxes, but you need to watch the figures to know whether to raise or lower that percentage as the end of the tax year approaches. Your husband will pay class 2 and 4 National Insurance as well as income tax on profits above the personal allowance. You can set up a spreadsheet to calculate this and update it regularly so you know exactly how much is due at all times. The tax year will run until 5th April next year and you can then file your tax return online and pay the money up until the end of the following January after that.

Calculation:

Take your total income from freelancing to date.
Subtract allowable expenses.
Pay Class 4 National Insurance at 9% of profits above £7755.
Pay income tax at 20% above personal allowance level of £9440.
Add Class 2 National Insurance payable at £2.70 a week.

sparklyjojo

Thank you so much, that's so helpful - and seems less scary than I first thought! Really appreciate your advice

Savvy_Sue

When he registers, he'll be invited to set up a DD for his Class 2 NICs, so that will be that taken care of.

Of course, whether this really is self-employment is a moot point, more likely the college getting out of paying holiday pay and SSP etc. But the process as described by tiger eyes is correct.

sparklyjojo

Thanks Savvy_Sue - yes, I think part of the reason I was getting confused when looking at HMRC website, was because the self employed information constantly talks about "registering as a business" and "business taxes" - which doesn't really fit for my husband. Like you say, it's quite debatable whether he is really "self employed" - I would say he's not really.... but we'll just have to go down this route for now, and hope they change their minds in the future!
I'm just so frightened we'll work it out wrong, and then end up with a huge bill we can't afford to pay.
At the moment we are transferring 30% of everything he gets paid into a separate savings account, so that we don't touch the money, and we just hope that will be enough to cover whatever we owe at the end of the tax year.
I notice that the deadline for tax returns is 31st January. He started at the beginning of this current tax year - so will we pay the tax for this year on 31st January 2014? i.e. a payment of 10 months' worth of tax payments?

tiger_eyes

sparklyjojo wrote: »

I'm just so frightened we'll work it out wrong, and then end up with a huge bill we can't afford to pay.
At the moment we are transferring 30% of everything he gets paid into a separate savings account, so that we don't touch the money, and we just hope that will be enough to cover whatever we owe at the end of the tax year.

30% should be more than enough - you can pay yourself a bonus from what's left over after you've settled the tax bill.

I notice that the deadline for tax returns is 31st January. He started at the beginning of this current tax year - so will we pay the tax for this year on 31st January 2014? i.e. a payment of 10 months' worth of tax payments?

That's the deadline for the last tax year. The current 2013-2014 tax year will have a tax return deadline of January 2015.

sparklyjojo

tiger_eyes wrote: »

30% should be more than enough - you can pay yourself a bonus from what's left over after you've settled the tax bill.

:beer:

That's the deadline for the last tax year. The current 2013-2014 tax year will have a tax return deadline of January 2015.

Oh I see! So, do we still need to register him with HMRC as soon as possible? Because if we register now, surely they will send a tax return for tax year 2012 -2013? - He was unemployed for this whole year.

Savvy_Sue

You do need to register ASAP. They may send a tax return for 12-13, but that wouldn't matter.

tiger_eyes

Yep, a tax return is no big deal if you've got nothing to declare. "Did you do any work last year? No? Did you earn any money? No? OK then, off with you."

Savvy_Sue

tiger_eyes wrote: »

Yep, a tax return is no big deal if you've got nothing to declare. "Did you do any work last year? No? Did you earn any money? No? OK then, off with you."

It's also a very good way of checking whether or not you're owed any tax.