Questions regarding self employed/partnership taxes (dates, tax calculations etc)

joecmorgan21

Hello,

I have a few questions regarding self assessment tax returns for money made via a partnership. I have no financial training but as out incomings/outgoings are fairly minimal I'm hoping to avoid paying for an accountant, but we'll see!

In August 2022 myself and a friend were approached by a company (company X) to build them an app. We agreed, and decided to set up a partnership due to it being less formal and easier from a tax perspective to the alternatives (I'm the nominated partner for the partnership). Since August we've issued 3 invoices to company X, totalling around £8,500, which has been split equally between me and my partner. All the money has been paid into a separate bank account of mine, that since July 2020 has only been used for payments relating to the partnership. In total there have been 3 payments into the account by company X, and 8 payments out (3 to my partner totalling £4,250 and 5 to me totalling £4,250). We have had £0 company expenses or personal expenses. 

With regards to which forms I need to fill in, I believe I need to fill out an SA800 form on behalf of the partnership, then both my partner and I need to fill out an SA100 self assessment form (with an additional SA104 form). That's probably going to be a lot easier said than done after a taking a glance over the forms, however I'm hoping that as we've split everything evenly and have had 0 expenses that it should be straightforward enough.

However I'm a bit confused about exactly how much tax we'll need to pay individually, and all of the guide I can find only are confusing me even more. We're both in full time employment, and have student loans (plan 2). I earn £44k per year from my full time job, and pay tax via PAYE. I'm trying to calculate how much I need to set aside when I finally pay my self employment tax bill. Plus I'm unsure if I need to pay any class 2/4 national insurance on the self employment income.

So I have following questions:

- When do I need to submit the forms above? Am I right in thinking our deadline is January 2024, as our partnership started operating in August 2022?

- How much money will I have to keep aside from my self employment to pay my income tax bill, and will I need to pay any class 2/4 national insurance, if so, how much? (and is there a way I can calculate this without having to ask MSE...?)

- If I do need to pay national insurance, when is the deadline for this?

Thanks in advance, and sorry for essay! 

Jeremy535897

Have you  and your business partner registered with HMRC as self employed, and have you registered the partnership with HMRC. You need to register as self employed by 5 October 2023, but the sooner the better really. Your first year of self employment is 2022/23, and you will have to file the SA100s and SA800 by 31 January 2024.

You will need to pay class 2 and class 4 NIC on the income, once you exceed the minimum figures. See
https://www.gov.uk/self-employed-national-insurance-rates

I would budget on paying 30% for tax and NIC, rising to 40% when you start to be liable for higher rate tax (£50,270 in England and Wales). Class 4 NIC is paid at 9.73%, but reduces to 2.73%. It is explained here:
https://www.litrg.org.uk/tax-guides/self-employment/what-national-insurance-do-i-pay-if-i-am-self-employed

Class 2 and 4 NIC is due when income tax is due, 31 January following the end of the tax year, but you may need to make payments on account of the following year's liability as well.

Savvy_Sue

I can't help thinking that the partnership / you as individuals should have SOME expenses you can offset against your income, thus reducing your tax liabilities ... but that's the kind of thing where an accountant can be helpful, which I am not, and it might be wishful thinking on my part. 

joecmorgan21

Thank you both for the replies. I honestly don't think we've had any expenses. The only equipment we've used to do the work are our personal laptops, which we also use for work. And any software we use is either free, or paid for my the company X. 

We have indeed registered the partnership, and registered individually as self employed with HMRC.

With regards to the NIC, I believe I don't need to currently pay anything, as my personal profit is less than £6,725 (it's £4,250), is that correct? However, if I make an extra £2,475 before 5th April 2023 to take me over the threshold, do I then need to pay £3.15 per week for each week I've been self employed between August 2022 and April 2023 (so 31 weeks = £97.65 class 2 NIC?). But if I don't make enough to tip me over the threshold I don't pay anything come January 2024?

So all in all, I'm currently looking at needing to set aside £850 (20% of £4,250)? But if my profits tip over to above £6,725 in the tax year I'll also have to pay £3.15 for each week I've been self-employed between August 2022 and April 2023?

Finally, do I also need to pay off my student loan from my self-employment profits?

Apologies for the questions, this is all very new to me as you can probably tell!

Savvy_Sue

joecmorgan21 said:

Finally, do I also need to pay off my student loan from my self-employment profits?

Yes, don't ask me how but I think when you do your tax return HMRC will note your liability to pay and add it on to what they ask from you. A little googling confirms that 

'Income' includes earnings from employment, self-employment or rental income'

And for the mechanics:

https://www.gov.uk/guidance/tell-hmrc-about-a-student-loan-in-your-tax-return

Jeremy535897

The class 2 NIC level for 2022/23 is £11,908 for 2022/23, rising to the personal allowance from 2023/24. You also pay class 4 NIC above these figures at 9.73% for 2022/23. Your profits will count as income for student loan repayment purposes.

joecmorgan21

Hello, apologies for revisiting an old thread but it made more sense vs opening a new one. I've spent some time working out exactly how much tax I need to pay for the self-employment income, however I have a few questions regarding 'payments on account'.

So if I earn a taxable profit in the 22/23 tax year of £6000, I will pay 20% in income tax (as I'm in the lower bracket), so £1200. I'll defer NIC 2 and 4. So as far as I was aware I owe HMRC £1200 in January 2025. Then let's say in the 23/24 tax year I earn £2000, I will pay 20% in income tax (as I'm in the lower bracket), so £400 to HMRC in in January 2026.

This is what I assumed to be correct. However I've now read about payments on account, which states that in July 2025, I need to pay 50% of what I earned in the previous tax year forward, so £600. This is actually £200 more than I need to pay, so would I then be able to claim it back?

I've also read that 'If more than 80% of your income gets taxed through PAYE, then this won’t apply to you' - this is the case for me, as I have a full time job.

If anybody would be able to explain this I'd be really grateful! 

Jeremy535897

You can't defer class 4 NIC any more, but your profit figures are below the limits for class 2 and class 4 contributions to be payable.

This explains how payments on account work. The 80% rule is explained here (slightly more detailed than 80% of employment income, but probably no difference in most cases):
https://www.gov.uk/understand-self-assessment-bill/payments-on-account

You can't know how much you will earn in 2023/24. You can make a guess. It won't matter to you if you already meet the 80% test, but if not, you can always adjust payments on account in your self assessment tax return. Pay too little, and there will be an interest charge.