Self employed and employed how much tax would I pay?

EagerLearner

Hi Bean Counter - off to work at the mo will drop a message here later to explain more - thanks ;o)

pretty_lady

I am currently thinking about becoming self employed but will be going back into employment if it doesn't work out. What is the tax situation if after a few months I don't make any/much money and go back to full time employment? I have a little business expenses (probably totally £1000 for website and marketing etc) does this get deducted off what I earn if i went back to work or is it written off? As i won't get a P45 how was a new job work out my tax? Would i still need to do a self assessment?

Also if you are a sole trader is it a requirement to have a business bank account or, if one keeps detailed records, can i use my normal account?

MAny thanks

Bean_Counter

pretty_lady wrote: »

I am currently thinking about becoming self employed but will be going back into employment if it doesn't work out. What is the tax situation if after a few months I don't make any/much money and go back to full time employment? I have a little business expenses (probably totally £1000 for website and marketing etc) does this get deducted off what I earn if i went back to work or is it written off? As i won't get a P45 how was a new job work out my tax? Would i still need to do a self assessment?

Also if you are a sole trader is it a requirement to have a business bank account or, if one keeps detailed records, can i use my normal account?

MAny thanks

Hello,

When you start self-employment, you need to notify HMRC within three months of starting. If it didn't work out, from a tax on your self-employment point of view, you would fill in the self-assessment return and the end of the year. You can at that point net off your self-employment expenses. Tax is then calculated on the total of your self-employed net income and any employed income, less any tax already paid through PAYE.

When you went back to full time employment without a P45, you would ask your new employer for a P46, and then tick the box which says this is your only job and then PAYE starts up again as before.

Regarding the bank account, there is no requirement for a sole trader to have a separate bank, often just a lot easier.

pretty_lady

That's great thanks. Would i inform them when I go back into employment so that i don't have to do a self assessment every year or is it a case of once you register you always have to do one?

Also with regars to NI contributions i have read that if you don't make a certain amount you can apply for a certificate which means you don't pay but this has implications - do you know what these implications are?

Thanks again - you are a great help

Bean_Counter

pretty_lady wrote: »

That's great thanks. Would i inform them when I go back into employment so that i don't have to do a self assessment every year or is it a case of once you register you always have to do one?

Also with regars to NI contributions i have read that if you don't make a certain amount you can apply for a certificate which means you don't pay but this has implications - do you know what these implications are?

Thanks again - you are a great help

You could call HMRC once you stop being self-employed, and then I presume stop paying the class 2 national insurance if nothing else. You would eventually fall off the self-assessment return list, but not sure how long that would take. Maybe still get one for a year or two, but should be asy to fill in if only have employed income.

This link shows some of the various tax rates:

http://www.hmrc.gov.uk/rates/nic.htm

At a very breif glance you can avoid class 2 NI if you earn less than £4,635 per annum and avoid class 4 NI if less than £5,225 per annum. HMRC would also be able to advise.

EagerLearner

Hi BeanCounter - I am back - tired but wanting to find out more and glean more info from you My comments in pink...

Bean_Counter wrote: »

Hello EL,

The main principle for an item to be tax deductible for a self-employed person such as yourself is that it must be "wholly & exclusively" for the business. Of course

I don't know if you have someone else do your tax work for you and whether they disallow some of these items, but on the face of it (unless I am missing something) I struggle to think how the cleaning materials for example are "wholly & exclusively" for business use. Similarly for the travel costs, do you keep records of how much this is for business use and how much for travel and then restrict the tax deductible element accordingly? Some of the others might fall into this category too.
There is a lady who works with me on this but she said that as overall my amounts are so small I can include them as long as I am not putting every single thing through the business as it were, which I am not. As I am home quite alot it's hard to know what's right but were talking a few quid rather than major money on each receipt.

I know this is the not what you were looking for - you wanted more tax allowable items, but you get my professional opinion all the same. Much appreciated :T

On the more positive side, without knowing exactly the type of costs you incur, I guess you have been pretty thorough. The only other items I could think of would be:

1. Claiming capital allowances on computer / printer (bought a new computer in September last year, including that on this first tax return until April 07)
2. Do you have a car that you use for business? No but I use the bus and have put in my annual bus pass as a receipt under travel expenses?
3. Any professional subscriptions you have? Moneywise Magazine
4. Any training course you go on to keep your skills up to date? None as of yet
5. Any professional fees such as accountancy / tax practitioners? I will prob pay a nominal £50 as I will give her my time as a part exchange for tax return
6. Any anti-virus etc costs for your computer? I get them free online - AVG the Money Saving way

The best idea is to think about the "wholly & exclusively" element to anything you purchase.

Any more ideas you can think of? I worry there's more scope to this and I haven't considered everything

Bean_Counter

EagerLearner wrote: »

Hi BeanCounter - I am back - tired but wanting to find out more and glean more info from you My comments in pink...

Any more ideas you can think of? I worry there's more scope to this and I haven't considered everything

Hello,

I tried to quote your colourful message, but it's not there. Ah well, here goes. IT note my strong suit.

Point 1. I worked for a few year preparing and submitting tax comps to the Inland Revenue as they were then. I would have disallowed these items and I guess that you have not had a full HMRC investigation. The chances are you might not, but all I can say in my profession opinion as a CA, I would not allow for them if it were my own business. However, I am always prepared to admit I am wrong and if it works form you...

Next point on the computer. Personally, if it's less than £500, I would write this off in the year of purchase, hence claiming 100% tax allowance in the year of purchase. Anyway, who doesn't change their computer every couple of years in business...

Bus pass - in all honesty I would apportion the costs between personal and business usage and claim that portion for business.

Professional subscriptions - HMRC have a list of allowed items that are tax deductible. Unfortunately that is not on the list as far as I can see. Worth asking the question though.

Other items - not sure. At the end of the day it is hard to know without knowing your full circumstances. If you feel it is useful, I can pm you my phone number and we can chat if you want?