Setting up self employment tax

freelancepuddle

I was recently given a job working for a company as a remote (freelance) worker. I would be paid a salary each month by the company/agency I work for and they told me I would be in charge of paying tax to HMRC UK. I would be on a fixed salary and hours but would have to invoice them monthly despite it always being the same amount.

So call me naive but I've never had to sort out my own tax working for a company before, in the past my employer and the companies I've worked for have always sorted out payroll and tax deducting it from my earnings. Since I'm not finding my own clients nor working for myself, I assumed it would be no different.

I know that you have to apply online, but how does it work paying self assessment tax? Do you pay monthly or yearly? Do you have to file a self assessment form and what does this include? Can you do this online? What if you're living abroad whilst working remotely? What if you decide to leave the role, do you continue to pay?

I'm completely new to this so if someone could explain it to me that would be helpful and greatly appreciated. I'm very reluctant to take the position because I'm so unfamiliar with how self employment tax works and it seems like a pain.

TheCyclingProgrammer

OK, first things first, are you really self-employed or is your employer forcing you to be self-employed to save them having to give you employee rights and pay employer's NI?

Can you work for other people? Do you have a degree of freedom in how you do your job or are you under supervision and control?

Take this test and see what it says:
http://tools.hmrc.gov.uk/esi/screen/ESI/en-GB/summary?user=guest

If you are really in disguised employment, then so long as you are paying tax then its not really come back on you - it would be your "employer" that is in trouble, however think carefully about this job. By taking you on as self-employed you have much fewer rights. Are you comfortable with that?

All that aside, if you proceed as "self-employed", you need to register as self-employed with HMRC. You have until the 6 October this year to do that. You will be required to submit your first tax return for the current tax year by the 31 Jan next year (if you do it online). You will also be required to make your first tax payment for the current tax year and depending on the amount of tax paid - possibly a payment on account towards the 17/18 tax year. You will probably also have some class 2 NIC to pay and if you made sufficient profit, class 4 NIC.

You need to send your client an invoice each month. Keep records of all your income and outgoings. Try and put aside any money you need for tax as you earn it.

You may want to consider using something like FreeAgent to track your income and expenses - it will even do your tax returns for you and may make life easier.

agrinnall

Sounds like disguised employment to me, it's being done so that they don't have to pay HMRC employer's NI and you any sick or holiday pay. Unless you are being paid a significant uplift over regular employment (minimum 25%, better 50%, good 100%) then there's no benefit to you. You need to think seriously about whether you wish to continue working for this company, if you decide to do your best option is likely to be to insist that you work PAYE, but if you end up remaining self employed come back for help on what you need to do.

Edit: TCP's post has already given you a starting point to SE.

freelancepuddle

Thank you for the informative responses. Unfortunately the link that was posted doesn't work though.

I think you're right - they're employing on a freelance basis to avoid paying certain things on their end. That doesn't bother me as it doesn't effect me, what bothers me is that ache of having to go through all of this with HMRC when it's their job as my employer. However, I have heard that it's extremely common for remote workers to sort out their own taxes. I have close friends who work remotely for one company and all of them are on a self employed basis.

I would work for them and only them on the same salary every month on a set amount of hours. I wouldn't work in house, but remotely. I come under the category of 'worker' because I work for the company, not myself. The pay is good, but I am hesitant to agree to a contract under these terms. I asked if their company had an accountant to help their employers sort out these issues and they don't, they said it's unusual for a freelancer not to deal with their own tax.

All of that aside, do you pay yearly when you fill in a form or monthly? I read somewhere that there is an option to pay weekly, monthly and yearly to HMRC on a self employed basis.

TheCyclingProgrammer

Try this link:
https://www.gov.uk/guidance/employment-status-indicator

Working from home is not a good basis for claiming self-employment. Lots of employees work from home.

You pay your tax bill annually though after the first one you usually make two payments on account towards the current tax year (one in January, one in July) and then a balancing payment the following January.

freelancepuddle

Thanks for the link.

I took the test and it says I would be self employed, despite having a set amount of hours (20 hours a week) and tasks and responsibilities each week and I wouldn't be able to provide a replacement if I couldn't do the work. I do however provide my own equipment (I use my own laptop & tablet) but that's about it. So I'm not sure how it's worked it out. I would only be working for this company, not for personal clients. I also wouldn't be getting any perks from what I know (private health care, car park space etc.). I could work for other people if I wanted to and there would be no supervision since I'll be working in my home, but I would have to report back to them a lot and keep a strong communication up via emails and providing data.

I also looked into the repercussions of being forced to be a disguised employee and it's not something I want to mess around with. It's frustrating because the role is great and the money is too, but they seem persistent on treating me like as a freelancer because I am open to working remotely.

TheCyclingProgrammer

What is it that you do?

freelancepuddle

TheCyclingProgrammer wrote: »

What is it that you do?

I work in media and marketing, so I run and manage ad campaigns, cultivate leads, monitor social media, that sort of thing. I was in contact with the company and they clarified it will be a retainer contract. How do you sort out tax for a retainer contract that may or may not be for more than a couple of months?

I asked if they would put me on PAYE and they declined.

I also read somewhere that if you don't have multiple clients HMRC can argue that you're not self employed.

I'm still trying to get my head around how it works with self assessment tax and paying 3 times a year but paying NI weekly. Do you put aside money you have earned from your earnings to one day pay HMRC or can you set it up to be taken it monthly? What if you stop working self employed, can you easily cancel it? If so, how?

I worked out how much I would pay for a year and this was the result:

Amount owed to HMRC: £2,185.24. Payment on account for 2018/19: £1,092.62.
Total Self Assessment due by 31st January 2019: £3,277.86.
A further payment on account due by 31st July 2019: £1,092.62.

So overall tax for a self employed worker is over 7k on a 18k a year salary? Can someone explain this?

agrinnall

I can't see why the test would point to you being self employed because literally everything you've told us points to you being employed.

You say it doesn't affect you, but really it does, because you won't get paid holidays or sick pay, and you will have to pay NI on a different basis (although I'm not sure whether that ends up costing you more or less than if you were employed).

It's up to you if you want to go for it, and it's pretty likely that if you don't somebody else will, but really what needs to happen is for everyone to refuse to do this sort of work and then employers would have to act responsibly. As it stands they get away with it because people will do it either because they don't know any better or because they need the money and/or the experience. If you do take it I suggest you try to use it as a stepping stone to a job with a decent employer.

Dazed_and_confused

freelancepuddle

Your example includes tax due for two years not one (all tax for 2017:18 and payments on account for 2018:19) and in any case your figures show just under £4400 to pay, where on earth are you getting £7000 from ��

Figures clearly not a strong point so you might save yourself a lot of confusion (and possibly tax) by using an accountant??

NIC is no longer paid weekly for the self employed, this stopped a couple of years ago.

freelancepuddle

agrinnall wrote: »

I can't see why the test would point to you being self employed because literally everything you've told us points to you being employed.

You say it doesn't affect you, but really it does, because you won't get paid holidays or sick pay, and you will have to pay NI on a different basis (although I'm not sure whether that ends up costing you more or less than if you were employed).

It's up to you if you want to go for it, and it's pretty likely that if you don't somebody else will, but really what needs to happen is for everyone to refuse to do this sort of work and then employers would have to act responsibly. As it stands they get away with it because people will do it either because they don't know any better or because they need the money and/or the experience. If you do take it I suggest you try to use it as a stepping stone to a job with a decent employer.

Yes I realize I don't receive any perks or incentives, I'm more unhappy with the fact I'll have to figure out tax returns and file with HMRC as self employed despite asking to be put on their payroll as an employee in which they declined. It's a part time role (15-20 hours a week) and they can treat me as a retainer freelance because they don't control when or how I do the work, plus I supply my own equipment.

They clarified that it's a retainer contract, so I'm not employed. They are treating me like an employee though - I have to go to meetings, and travel to the offices which are a good few hours away from me periodically for further meetings. I think I have to claim back on my tax for these trips or they'll cover it then take it out of my monthly pay. Retainers I'm pretty sure are paying for having someone on the side to work for you when they need you - not working a set amount of hours a month, although I could be wrong. It also means if I don't suit their demands they can legally have their retainer refunded.

They are sending over the contract tomorrow and I raised my concerns with them and their response was: 'I know a lot of people personally who have worked for only one client for years as freelancers', pretty sure that makes them disguised employees.