Stopping full time paid employment - tax implications?

CraggyRockFace

Hello,

I've decided to stop working. I'm going to be leaving my permanent job next month and taking some time out for possibly 1 year or more.

I have considerable savings, and my wife will continue to work. Initally I plan on doing no paid work at all, but I may get involved in a small amount of freelance work after a few months.

I wanted to ask if there was anything I should be aware of in terms of tax, self assessment etc, and who I should be informing.

I think it will be likely that come April 5th, I wont earn above the basic tax threshold next financial year.

I know I should inform all my savings account operators, anyone else?

Obviously I will also stop paying my student loan back.

Anything else I should be aware of? How should I set myself up for occasional freelance work?

Thanks,

p00hsticks

Assuming your current employment is PAYE, then you'll probably be entitled to a small tax refund at the end of the tax year in April , due to the fact that the PAYE system assumes you wil lbe earning throguhout the year. By leaving in January, you will have around 2/12th of your allowance unused (for February and March).

If you can be sure that you won't have income (including gross savings interest and share dividends) above the tax threshold next year ,then you can apply at the start of next tax year to receive your savings interest gross of tax - you need to fill in a R85 form to give to each relevant savings institution.

CLAPTON

Assuming you are on PAYE and you stop in January 2014 then you may have paid too much tax and will need to reclaim it.

If you work freelance then you will probably need to register as self employed but no need to do that until the time arises.


If you know that you will earn, in total (including grossed up income), less than 10,000 in 2014-15 then you can ask your savings providers to pay you gross interest: but you can't do that until 6th April 2014 (assuming you will earn at least 9440 this tax year)

CraggyRockFace

Great, many thanks both of you. I forgot about the tax rebate I would be owed.

What would happed if I assumed I would be earning under the 10K threshold in 2014-15, and sent R85 forms to each savings providor - but then suddenly had more work than I expected and broke the threshold later on in the year. What would happen then?

xylophone

What would happen then?

You would have to cancel the R85s and repay underpaid tax which would probably necessitate contacting HMRC.

If you are not sure whether or not you will pay tax you should not complete R85s but should reclaim overpaid tax at the end of the tax year on R40. http://www.hmrc.gov.uk/forms/r40.pdf

See http://www.hmrc.gov.uk/taxon/ten-percent.htm worked examples regarding the 10% band on savings income.

CraggyRockFace

Thanks, just just what I needed to know.