Paying Tax as a Self-Employed Worker

NewbieMoneySaver**

Ok cheers for that.

That leads me back to the other way around it.

Can I who already works register as self employed and then use my current PAYE and then claim back tax for the expenses and the car etc?

Cheers

blue_monkey_2

OK, go back to the beginning.

Your wife works for Avon. She needs to register as self employed within 3 months. It does not matter when you register, from the time she starts working she will need to start keeping accounts. This will mean that she has to keep records of all money coming in - not just profit but all money coming into the business. She will then keep records of all the outgoings to run her business. The new car? No - unless it has been bought just to do her job, but then it gets more complicated as it will be a company car and there will be more taxes for her to pay and she will need to declare when it is sold and will have to pay Capital Gains Tax, etc... It is very confusing so I would keep the car out of it and claim personal milage - which she can do up to (I beleive) 10,000 per annum at 40p a mile.

Everything else - yes. Keep a note of all business milage and she can then claim 40p per mile for travelling - so if she covers 10 miles a day for 5 days it will be 10 (miles) x 40p x 5 (days), and this is her travel expenses. You can not claim any other expenses relating to that car such as tax and insurance, this is what the 40p a mile is for, as well as fuel.

So, she can claim for anything she needs to run her business, that will include stationary, the goods she buys to sell to her customers, her books, etc... I know there is not a great deal when it comes to Avon so the main thing is going to be the travel expenses so keep a note of the number of miles she covers each day. At the end of the year she will fill in a tax return, on that return it will ask her how much money she has had COME IN to the business (not how much profit). If it is more than 15k then she will need to give more a of breakdown of her expenses so this is why you need to keep detailed records. If the Income/Expenditure comes to more than HER personal allowance she will then be told how much tax she has to pay. It will show this on the HMRC website when she sends her self assessment in.

It would also be adviseable for her to contact your local inland revenue to ask about paying her Class 2 National Insrance Contributions. it costs around £11 a week but these are NOT deductable against her expenses so should not be included as such. But it is worth doing for peace of mind in case she is sick for example, as then she will be entitled to SSP from the DSS as she has paid contributions. It need not matter that she does not earn a great deal, if she cannot work then she will be covered and it'll give peace of mind.

If she is working from home then she can claim a pro-rata amount for the home for rates, heating, rent, etc... (again, too confusing if you have a mortgage as you'll have to pay extra taxes if you sell your home so only claim that bit if you rent your home). You can use a pro-rata amount so if you have 6 rooms and use one for working/storage then you can claim 1/6 of your bills as you are not claiming premises expenses.

As for you, no you can't claim anything, all you are doing is helping her unless she wants to pay you a wage. My husband helps me and he gets no financial benefit for this and we need not tell anyone anything as he is not in paid employment. IF I did pay him then he would have to declare this additional salary (even if it is £10 a week) and he would pay Tax and NI on this amount as he is already working so there is no 'free allowance'. You do not get an allowance 'per job' so please don't think that this is the case.

So, the job is hers, she is self employed, you are helping her out so there is nothing you need to do.

She needs to keep all records from the time she starts working, tell the Inland Revenue and then call them about paying her NI contributions.

She can claim expenses but it will have to be done in an accounting manner - that is to make a note of everything that comes in (maybe set up a seperate bank account for this money, it get's very confusing to mix business and personal money and this was a mistake I made early on when starting out) and then everything that goes out. When she gets her statement/invoice from Avon she will need to make a note of the expenses seperately on her expenses sheet (set up an excel spreadsheet), do not just write a total as they will need to be analysed in regards to what stuff has been bought to sell to customers (the toilettries etc..) and the stuff she needs to sell such as books, so it would need to be something like this:

Goods for customers - XX
Books - XX
Samples - XX

Then she needs to put the money coming in on the other side so she can see what has come in against what she has paid out.

Just another thing - is she an Avon Rep or higher up? It is more involved if she is higher up and is trying to recruit people to sell as she won't be buying books and the like in, however, I would assume she is on commission then so this will her money coming in. Can you clarify this as she can still claim for her milage, but what money will she have in to offset if she has no-one to sell for her yet. Either way she will still need to go self employed - if she makes a loss and you are claiming Childrens Tax Credits this can actually be offset against your salary at the end of the year and given to the IR when you declare you money is correct and you could be entitled to a refund or extra money. This is what they told me when I made a loss in my first year anyhow, this could have changed now so no promises but bear this in mind.

Remember, she needs to keep records from the day she STARTED working, not from when she declares SE with the IR, she could of earned £10,000 in those first 3 months - that does not means she gets that money for free and without tax!!

It's early so hope that all reads as it should.

blue_monkey_2

Oh yes, I see now. As for you it is the same (sorry I read you was working for your wife intially). If you get paid for doing your mystery shopping then you declare this as additional income but you will also be able to add your PAYE earnings from your P60 at the end of the year on your self assessment form and then you'll claim the same in the way of expenses as your wife - so this will be the 40p a mile for travelling in your case as well as anything you pay to do your 'task'. This will be offset against your pay and yearly salay and if any further Tax & NI is due the Self Assessment website will tell you.

You need to register with the website to put your self assessment through online, it takes a good few weeks to get your passwords through the post but make sure you do it as it will make everything a lot easier for your assessment and will tell you then what is due and when it is due to be paid.

jimmo

There seems to be a lot of useful “insider” information in blue_monkey’s posts but I am afraid there are a couple of tax howlers.
I have a pre-conception that the average Avon Lady is a house-wife and does the work to make a little money, not expecting to make a lot and certainly not expecting to make enough to have to bother about tax and National Insurance. Our own Avon lady travels around the estate in her invalid tri-cycle and, regardless of whether my wife buys anything or not, the Avon lady is content to park herself on the doorstep for 15 to 20 minutes each time. Local gossip is really important to her.
Nothing wrong with that. She seems to enjoy herself and make a few bob in the process
I do apologise to any Avon ladies who are offended by that, but if your wife does fit my picture then frankly, you will be wasting your time trying to engineer a situation of you offsetting what are really her expenses against your earnings from your employment.
If she has greater, realistic ambitions then I think you could, possibly get a result. However it really is high risk stuff.
That would involve you setting up your own self-employed business supplying services to your wife’s business and then claiming relief for your losses to be set against your general income.
I really don’t see it working but you do need to realise that Self Assessment does exactly what it says on the tin. You will get the tax relief if you put in the Returns but I really think that the taxman will come knocking on your door in a few years time.
If you really believe that your wife’s career with Avon will take off in a big way it could be worth a punt but frankly, I wouldn’t touch it with a barge pole.
With regard to Blue_monkey’s posts the car is definitely not a company car unless your wife decides to incorporate. Cars are not chargeable assets for Capital Gains Tax and there is no way that CGT can arise.
If your wife exclusively uses one room of your house for business purposes then there is a possibility of a Capital Gains Tax charge when you sell but, in practical terms it’s really very unlikely.
However if she uses 1 room out of 6 exclusively for business purposes she can claim 1/6 of your mortgage interest. Not much use now but if she makes a real go of the business it will be useful in the future.

As to your mystery shopping,
1) Are you doing anything contrary to military regulations taking this on?
2) My son signed up for this in his student days and got his first offer some 2 ½ years later. Based on what I have learned from this site I think you should regard this as casual income. As long as you remain outside Self-Assessment send a letter to your tax office each year to tell them how much profit you have made.

jimmo

Nothing to do with tax so I’ve posted this separately.
My impression is that you are struggling as a family despite you earning a decent wage. Avon may or may not work. Mystery shopping may or may not work.
When we were struggling my wife took on evening jobs stacking shelves at Tesco and later as a ward domestic in the local hospital. No promises of riches but a guaranteed small income. It worked for us.

NewbieMoneySaver**

Thankyou very much all for your help,

So Jimmo, Are you saying that my wife does not need to register as self employed? At the moment she does actually earn under the tax allowance of £5000 or whatever it is.

blue_monkey_2

Newbie,

You did not state what it was your wife does - is she an Avon lady or an Area Manager? If an Avon lady I was confused by you saying she has to recruit. Does she not have a territory local to her - I am confused as to why she is travelling a lot to recruit. If it is to get new customers then she can do this on a weekly basis rather than daily. People prefer a note through the door and then if you collect the book later you can put a note inside asking them to tick whether they would like a book in the future - maybe include an email address - this is much easier and a lot less intrusive (a lot of people don't like the latter) how many miles is she doing? I live in a rural area and I guess I was covering about 25 miles a week as I had the little villages around me to do.

Jimmo, yes I used to be an Avon lady - while the 'money in' is not a great deal (for me anyway except at Xmas) unless you have a VERY good round then you would not really earn 5k per year. There are however other potentials. You buy the goods in yourself (the customer has already ordered these but have not paid and regardless of whether your customer pays you for them) you then sell them to your customer, pay Avon and then keep any profit for yourself. There is the possibility to make more out of the job though and I think a lot of people do it for this reason, for example, they will often do offers at 3 for the price of 2 and if you have 4 customers who have bought 1 each that means you can order another 2 items free of charge and they would be yours free as you are not paying any extra to receive them (I hope that makes sense) so you can use them yourself, save them all up for gifts, etc... plus you can go between 2 brochures (there are always 2 'campaigns' running) and you can take the better offer from the brochure and make more money that way (for example, there might be BOGOF in brochure 1 and someone has ordered 2 from brochure 2 at normal price so you put them through from Brochure 1 and get the extra money from the BOGOF offer). You have to be clued up and organised to get the most out of it this way and it takes a while to get your head around it but because you do a round every 3 weeks it means you only 'earn' once every 3 weeks rather than weekely. To earn 5k per year you would have to have a round that gave sales of around 18k per annum, or £1000 per brochure, and I don't think I know anyone who had a round like this unless they had a very large territory. I guess it is possible. The other thing is that if another source of income came in (your wife got a P/T job for example) then this money would have to have Tax paid on so it would need to be declared.

I thought that if you was self eployed and earning money then you was self employed. When I initially started working for myself it was for silly money (£25 a week profit or so, if that, as I started selling on eBay) and I did not realise I had to call the tax office to say i was working. After 6 months I read in the paper that I should declare self employment if earning money so I gave them a call and explained what I was doing and how much I was earning and they told me that if I was earning money, whatever amount, I should have declared being self employed. I had the £100 fine come through for late declaration but I sent a letter explaining that I did not earn enough to pay tax and I did not realise I would have to declare that I was earning and the fine was waived. However, the Tax Office did make it clear that earning is earning and I should be declaring self employment. And this is what Avon is, you buy goods from Avon to sell to your customers, so I would have thought this was self employment. I see you are a retired Tax Inspector so sorry if I am wrong there but this is what I was told by the tax office when i called them and I was not earning much either (it was 4 years ago though now).

I pay rent where I am now and yes, I had a room I use exclusively for storage, it was all racked out and we had boxes in there so that is why we claimed the pro-rata rate.

I would say that if you have any queries though to call the Tax office as I found them so helpful with everything I had to ask and don't be scared by them.

NewbieMoneySaver**

Sorry about the delay,

My wife is a Avon lady yes. She is just a rep at the moment but we are looking to expand. She has four rounds at the moment but we are dropping one or two of them.

I dont really understand everything. With all the incom from her business that including what she pays back to Avon for the goods she probably would clear the tax bracket of £5grand. With profit alone she is getting on average £120 every 3 weeks.

The reason I asked about the travel expenses is that she has to drive a good 15 miles to get to one of the areas.

Hope this is ok for now. Thankyou very much for helping.

blue_monkey_2

Hi Newbie,

I would say she has nothing to worry about then, it is not what she brings in but what her profit would be abd 18 x 120 is under £2,500 pa. So, if you read jimmo's advice then she would not need to register. I know a lot of things were said here but also, how many miles does she cover? I think sometimes when you get things down on paper you might realise that it is not worth her doing it - especially if she has to put in a lot of time to do so.

I wondered how you was looking to expand if you was dropping a couple of rounds tbh? The Area Manager jobs are quite hard to come by and really hard work - much, much more than she is doing now and much more involved as well. I think that Avon employ their Area Managers and then she would not need to be self employed.

In regard to NI, I was told that it would enable me to claim SSP and Maternity Pay if I needed to (help me not maternity pay, LOL) but I pay around £11 per month for my Class 1 contributions, if you a contracter there is a different rate to pay (Class 4 I think) but it is worth paying the contributions as then she will have paid her 'stamp' to enable her to get her pension, etc... The IR will give you more information but from my veiw it is worth doing and gives me peace of mine should anything ever happen that means I cannot work.

In regard to travel expenses, if she is not registered as being self employed as she is not earning enough then it is irrelvant as ther eis nothing to claim them against - if she is self employed then she can claim the cost of fuel for travelling expenses. I guess it is really down to you to decide to do what is for the best, however, if she does decide that she wants to move onto bigger and better things in her self employment then heed the advice of jimmo in that there will be a penalty and she will have to send in back-dated information so it really is to decide for now where she wants to go forward with this. As a rep she will not earn enough money to worry about it, but as I was unsure what you meant by "expanding" - if you think that in the future she might earn more than 5k pa then it would be right to register and keep all records accordainlly.

I hope this helps.

sleepless_saver

Sorry to butt in, blue-monkey, but I am really confused now. I thought you had to register as self employed no matter how low your self-employed income is. See post below which I have taken from the Mystery Shopping thread.

Registering for tax

If you wish to start Mystery Shopping, even just one job, you need to register with Her Majesty’s Revenue and Customs (HMRC) within 3 months or you could face a fine of £100. Please don’t think that because you’ll potentially only earn a few quid doing MSing that you needn’t register as self employed – it’s absolutely essential that you do as being caught out can be costly. The admin work involved in being self employed is so minimal that it’s not worth avoiding - and we're here to help you do it!

Forms and Guidelines you will need –

To register as Self Employed you will need to either ring HMRC on 08459 15 45 15 or download and send back the form CWF1 (http://www.hmrc.gov.uk/forms/cwf1.pdf )

You may also be required to pay class 2 National Insurance at the rate of £2.20 a week, but only if you earn more than £4,635 (between 06/04/07 and 05/04/08) after expenses in any one year through Self Employment. This means earning more than £4,635 in addition to your other sources of income.

If you think you will earn less than £4,635 in the financial year, then you can apply for a “Certificate of Small Earnings Exception” which means you will not have to pay NI (National Insurance) Contributions. The Exception application can be found at the end of this document CF10 - http://www.hmrc.gov.uk/forms/cf10.pdf