Starting to pay tax (Self-employed)

Summers343

Hi everyone,

I really hope you can help me; I'm very worried and want to get the process of paying tax sorted out. I'm 25 and have done so many different things: jobs with different companies, college, university, but mainly, and what this thread is mainly in reference to, cash-in-hand work for a builder (a family friend). I guess for the most part since leaving school, I've either been studying or!employed for a company, but on and off, I've worked for the builder as well throughout it all (although very minimally during employed full-time jobs).

I first worked for him full-time!when I left school at 16, and he was paying me £20 a day cash-in-hand. That was for about a year until I got a full-time job in retail. Between then and now, I've mainly been in full-time work or studying, but I've worked for him sometimes at weekends or for a few months full-time!solid between jobs.

I've always paid tax at the other jobs I've worked at because it was easy - to be honest the company always did it for me (I used to see it had been automatically taken out!on my payslips). But when I was 16 and I first started labouring for the builder, I knew absolutely nothing about tax and I had no idea I was doing anything wrong, and to be honest, I've just kind of always stayed in that same frame of mind for some reason when working for him; it's not like I've ever taken a!big wage from it and I've always viewed it as an in-between job. Until now...

I finished university in June this year!and I've been working for him (and building up my skills) since then pretty much full-time, and it's looking like I'm going to join and work in the trade full-time. The problem is: instead of paying me cash, he's actually been transferring the money directly into my bank account for the most part. I never saw any issue with it until a few days ago, and I've realised that I should be paying tax. In fact, the other week, he let me invoice a shop directly!to pay my wages, so they transferred that money into my account. I'm just so worried, because in absolutely every other aspect of life, I'm an avid rule-abider and I don't like doing things wrong. I would rather pay more tax than have something hanging over my head.

What do I do? It would be virtually impossible to track back to everything I earned when I was 16 and the years after that. I guess I could track back until June, but even that would be difficult because bits were in cash and everything he transfers into my account isn't for wages.

How difficult is it to pay tax by myself? That invoice from the shop is the first I've ever done - is it as simple as making an invoice for everything from now!on that I earn!(even my wages directly from him) and using those to calculate my tax bill?

Any advice would be much appreciated - I'm really worried and want to get this sorted out.

Summers

Savvy_Sue

I think the first thing you must do is agree with him how this is going to work in future: either he gives you an itemised statement every time he pays you anything of what it covers, eg "4 days' labouring plus reimbursement of purchases from DIY shop" or you invoice him at an agreed daily or hourly rate. That way you've got records.

And having said that, you may both be in some doodah, because if he's employed you (he'll probably deny it) then he ought to have registered as an employer and fulfilled his obligations for tax, NI etc. And if you are self-employed, there are some extra obligations for builders, about which I know very little so we'll hope someone comes along who can fill that out.

So then there's the historic thing. You need to get yourself a rough estimate of how much you've been paid. I don't know how you do it: look at your old diaries and THINK. "I was away in August, so I can only have worked x days" and so on.

You've got to do this, because if you don't, HMRC will do it for you. And ask yourself, will they under-estimate your earnings, or over-estimate them to maximise the tax you're due to pay? They won't do it maliciously, it's just their job - and let's be honest here, if you can't remember, are you likely to over-estimate or under-estimate?

However, before you tie yourself in knots over this, remember that every year you have a tax free allowance. So if, as is likely while you were a student, your income from PAID employment is less than that allowance, you can earn up to that amount from self-employment. If it's a big gap, you may calculate that you're beneath the threshold so you can stop panicking.