"Dummies Guide" for Self-Employed?

haelen

In order to avoid asking endless questions about basic tax-avoidance for the self-employed, does there exist a "Dummies Guide" or similar?

I understand the basic expenses (which seem very few, and don't make much of a "dent") but only recently heard that, for example I could employ a member of my family and save tax in that way. (I've "sacked" my accountant for not pointing that out - as it seems to be basic common knowledge, but I could be wrong!)

TIA,
Tim

antrobus

haelen wrote: »

...I understand the basic expenses (which seem very few, and don't make much of a "dent") but only recently heard that, for example I could employ a member of my family and save tax in that way. (I've "sacked" my accountant for not pointing that out - as it seems to be basic common knowledge, but I could be wrong!)....

Although you do un-save the cost of employing the family member in question. Since, of course, they now have the money and you don't.:)

Lots of businesses do indeed employ family members. (Some might say that was the whole point of running a family business in the first place.) However if you are self-employed, and employ a family member in your business, the family member in question does actually have to do some work. HMRC have been known to ask questions on the subject, and therefore it is a good idea to have some answers ready.

haelen

ISWYM about "not really saving". In the case of my wife, I would encourage her to perhaps put the money towards food shopping.

Yes, I've heard that HMRC may check, so I would have evidence at the ready.

Would she have to fill in a SE self-assessment too, or would he being paid simply be included on my form?

Thanks,
Tim

PlutoinCapricorn

There are many variables with self employment: one size does not fit all.

People new to self employment often get excited about expenses, but you just get tax relief not refunds so still have to pay 80% of the cost in real money.

haelen

Dummied Guide and links much appreciated.

Thank you. :beer:

chrismac1

When it comes to the employment of spouses, different people go for different options. In my view your accountant should have outlined these since it is standard stuff. Whichever options is taken, it's important to have a good record of the duties performed and ideally a visible role. For limited companies, ideally the person should be a Director or Secretary and be the person approving the accounts and corporation tax. Tough for HMRC to argue the role is a sham when the person's name is on the tax return!

Option 1 is below the radar, under the Lower Earnings Limit currently 481 per month. Advantage is it is cost free.

Option 2 is above the LEL but below the level at which NI is paid, currently 663 per month. This requires the employer to register a PAYE scheme and file monthly submissions to HMRC. The advantage is that the employee gets a full year's credit towards State Pension, rule of thumb is this is worth £1,000 on average but depends how long the person expects to live!

For 2014-15 the most tax-efficient salary is £10,000 per year. No tax is paid, employer's NI and employee's NI is payable. But the salary and employer NI is an allowable business expense, and the cost of the NI is lower than the tax saving achieved from these extra expenses. The key point here is that each employer gets the first £2,000 of employer NI knocked down to zero, so for small businesses with few employees £10k is the way to go.

densol_2

I employ my son - part time as he is a student. He is under the LEL so was no need to register PAYE real time. He does my web page, leaflets, works on my promotion stall and ghost writes. He gets a monthly salary slip and paid direct into his account. We keep daily time sheets of the different bits of work - he's paid just over the min salary. The amount you pay a family member is relevant - pay an 18 yo £30 an hour HMRC are rightly going to question ! Lol

haelen

Thanks for tips, Denise.

Best Wishes,
Tim