Keeping track of PAYE tax for self-assessment

antle

Hi All,

I was hoping someone might be able to help me clear up a problem I am running in to as I am fairly new to the self-employment game!

I think I have understood the basics of keeping track of my earnings, invoicing and expenses. But a problem I have run into a couple of times now, is clients that insist that I am set up on their system as an employee and that I get paid PAYE.

If I am doing my invoices right, this essentially messes up my books, as I am invoicing for one amount and then getting paid less with no way to account for the missing amount.

My question is: How do I follow the rules in such a way that I can honestly declare the right amount of taxable income I have earnt if I get paid like this, and what is the proper procedure to record being paid in such a way on my invoicing system?

Many thanks in advance!

molerat

You cannot invoice your PAYE employer. What expenses do you incur in this "employed" work and what do they pay you for ?

antle

Sorry, maybe I wasn't very clear.

I am self-employed and registered as a sole trader. But some of my clients require me to be registered on their system and getting paid through their payroll.

My question is about not getting paid the amount that I invoice because PAYE has already been deducted by the employer.

For example, I would normally invoice a client for £100, get paid £100 amd then put around 30% away for my tax savings. But with these few clients, I invoice £100 and then get paid £80 as they have deducted PAYE tax already. I am wondering how I account for this discrepancy and how it will eventually impact my tax return?

Thanks!

antrobus

antle wrote: »

...My question is: How do I follow the rules in such a way that I can honestly declare the right amount of taxable income I have earnt if I get paid like this, and what is the proper procedure to record being paid in such a way on my invoicing system?
...

As far as tax etc is concerned, you no longer have to account for it.

If a client insists that your an employee, they are responsible for tax and NI. They will send you payslips, and a P60 at the end of the tax year, and the numbers from the P60 go on your SA return.

I understand this gives you an issue with your invoicing system. You can either (a) not put them through your system , or (b) put it through the system in such a way that you can identify it, and exclude it from your self-employment income.

As in, have a seperate category of income 'PAYE clients' , and those 'missing amounts' can be cleared by an entry to a dummy 'PAYE suffered' account.

Does that make sense?

molerat

You don't. They are employing you as an individual and not as a sole trader. You don't account for this through your SE tax , it is income from employment.

antle

Ah right! I always wondered how 'official' it was when clients said: "you can generate an invoice for your records if you wish"!

That makes a lot of sense, thanks!

Would you be able to go into a teeny bit more details re:

"As in, have a seperate category of income 'PAYE clients' , and those 'missing amounts' can be cleared by an entry to a dummy 'PAYE suffered' account."

Thanks a lot!

NordicNoir

antrobus wrote: »

If a client insists that your an employee, they are responsible for tax and NI. They will send you payslips, and a P60 at the end of the tax year, and the numbers from the P60 go on your SA return.

Just to clarify for the OP, you will only receive a P60 if you are still working for that employer on 5th April. If not, take the details from your copy of the P45 that they will have sent to you.

NordicNoir

molerat wrote: »

You don't. They are employing you as an individual and not as a sole trader. You don't account for this through your SE tax return, it is income from employment.

antle, you will still need to show it on your tax return, but under the employment pages. Your tax return must show your whole income, from whatever source.

Once your tax liability for the year is known, then allowance is made for the tax that you have paid under PAYE, so that you just pay the excess.

antrobus

antle wrote: »

...Would you be able to go into a teeny bit more details re:

"As in, have a seperate category of income 'PAYE clients' , and those 'missing amounts' can be cleared by an entry to a dummy 'PAYE suffered' account."...

How does your 'invoicing system' work? Are you using somekind of accounting software?

antle

@antrobus I'm using wave to raise and process my invoices at the moment. It seems to do the job:

waveapps.com

antle

MichelleUK wrote: »

antle, you will still need to show it on your tax return, but under the employment pages. Your tax return must show your whole income, from whatever source.

Once your tax liability for the year is known, then allowance is made for the tax that you have paid under PAYE, so that you just pay the excess.

Thanks for the clarification @MichelleUK!

Would you say it is best practice for people to raise invoices for PAYE earnings then, or just make sure to file any P45/P60s accordingly?