Payment in advance confused - self employed

jules9

I will shortly be completing my online tax assessment for the tax year 2013-2014.

I realise from a quick glance at earnings from my self employed work that I will have earnt between £5k and £7k for the first time. Previous years have always been less. I also have a pension and two taxed at source jobs.

My question is this,
If I have earnt this amount from my self employed work will it mean I have to start the payment in advance payments and if so when will I start the payments, eg this year or not until next year?

I'm also exempt from NIC due to being under £5k last year, will I have to start paying this and if so when?

Dr_Teeth

You only have to pay payments on account in advance if the tax you owe is over £1000 for the year.

jules9

Surely my tax will be over £1000 if I earnt between £5 and £7k?

Savvy_Sue

jules9 wrote: »

I'm also exempt from NIC due to being under £5k last year, will I have to start paying this and if so when?

Yes you will, phone HMRC and ask them.

However, remember that it's your PROFIT from s/e work which counts in this case. If your earnings (gross) are £7000, what are your expenses? Because if they bring you below the limit for Class 2 NICs, you won't have to pay.

Dr_Teeth

jules9 wrote: »

Surely my tax will be over £1000 if I earnt between £5 and £7k?

Your personal allowance will be £9440 for 2013/14, so to have a total bill of tax and NI over £1000, you're looking at profit in the region of £12000 - £12500.

(assuming you had no other income, obviously)

purdyoaten

Dr_Teeth wrote: »

You only have to pay payments on account in advance if the tax you owe is over £1000 for the year.

Not necessarily - it could be that the amount payable is less than 20% of his total tax bill for the year, including income tax at source (or, put another way, more than 80% of his tax bill is taxed at source). In that case, there would be no payments on account.

http://www.hmrc.gov.uk/manuals/salfmanual/salf303.htm

jules9

That is my only self employed income but I also get a pension of £22k pa and work in 2 other taxed at source jobs bringing in around £4kpa.
My expenditure is very small, less than £1kpa.

So I'm thinking I will need to pay in advance?
If so when would I need to sort it out?

TheCyclingProgrammer

Work out how much tax you've paid in the year for your other jobs and then work out the tax on your net profit and see if it works out as more than 20% of your overall tax bill.

Also, payments on account aren't "payments in advance", they are really payments in arrears as they relate to months in the past (e.g. Your Jan 2015 payment on account is for the first 6 months of the 2014-15 tax year and the July payment for the second half of the same tax year).

The only thing they are made in advance of is your tax return.

purdyoaten

jules9 wrote: »

That is my only self employed income but I also get a pension of £22k pa and work in 2 other taxed at source jobs bringing in around £4kpa.
My expenditure is very small, less than £1kpa.

So I'm thinking I will need to pay in advance?
If so when would I need to sort it out?

When you file the return calculation will tell you whether you have payments on account. From the information provided, it looks close!

purdyoaten

PaulRobsonAccounts wrote: »

Or you could look at setting up a limited company and trading through this. You would pay corporation tax on your profits which is payable in arrears. You may have to pay tax on dividends taken from the company if you are a higher rate tax payer (which may be subject to payments on account), but clever tax planning will alleviate this.

On profits of 5-7K? The op has stated that he is basic rate.

Brighty

I got caught by 'payment on account' in Jan this year, didn't even know it existed. My tax bill in previous years had been about £600-800, but due to a change in circumstances i was now going to owe £1400. Submitted my return in Jan as usual, expecting a £1400 bill, only to find out they wanted £1400 for that year, plus another £700 as half payment in advance for the coming year with another £700 due in July! Came as quite a shock.
As i knew i would be back down below £1k again this year, i reduced my payment in advance down to £500 and submitted this years return as soon as possible so that i payed an accurate amount this month (£450). What i don't know is whether i now i am back below £1k, do i still need to carry on paying on account twice a year?

Brighty