Self Assessment Help

thelibrarian11

Hi, I work full time at 44k and freelance on top of it, absolutely caned the work last year and ran up a massive tax bill to the point where it wasn't really worth killing myself to do the extra work and I feel a bit silly. I'm trying to work out how much freelance work to do over a year to hit a sweet spot, where I stay under the 40% threshold and avoid paying child benefit back and a lot of plan 1 student and post graduate loan. Could you help me figure out how much extra work to do? What information do I need to get together to work it out? Is there a calculator online you would recommend? I am so clueless at this, would love to learn and get better at it.

Dazed_and_C0nfused

thelibrarian11 said:

Hi, I work full time at 44k and freelance on top of it, absolutely caned the work last year and ran up a massive tax bill to the point where it wasn't really worth killing myself to do the extra work and I feel a bit silly. I'm trying to work out how much freelance work to do over a year to hit a sweet spot, where I stay under the 40% threshold and avoid paying child benefit back and a lot of plan 1 student and post graduate loan. Could you help me figure out how much extra work to do? What information do I need to get together to work it out? Is there a calculator online you would recommend? I am so clueless at this, would love to learn and get better at it.

One option is £1,000.  That is the amount you can earn (in turnover) and then claim the trading allowance leaving £0 profit.

As soon as you exceed £1,000 you will be into profit territory and have some extra tax to pay.

If higher rate is the key thing then you would need to provide details of all your other taxable income (is £44k your salary or taxable pay?) and anything else relevant like Gift Aid contributions and relief at source pension contributions.

thelibrarian11

Yes I'm well over 1000, about 15k this year. Taxable pay was 39k this year - does that mean my pay after tax free deductions, like my pension? I'm gonna ask really rookie Qs sorry, I've no idea about anything.

lisyloo

How old are you?
I'm not saying you should kill yourself, but you can easily avoid higher rate tax (or rather claim it back) by putting more into your pension.
If you are young then you need to bear in mind you can touch anything in there until 57, so that may be a big deal in your 20's but on the other hand your money has years to grow so it's a really good investment.

thelibrarian11

lisyloo said:

How old are you?
I'm not saying you should kill yourself, but you can easily avoid higher rate tax (or rather claim it back) by putting more into your pension.
If you are young then you need to bear in mind you can touch anything in there until 57, so that may be a big deal in your 20's but on the other hand your money has years to grow so it's a really good investment.

Haha, I should hope not. I am in my 40s. Yes I learned this recently as well, not sure it's right for me as I don't have the option of a pension in my freelance work, and if I don't get any work putting more into my pension for my full time role is unaffordable.

Could I do something like... pay my husband for childcare while I do the extra work and claim that as wages paid by my business? I am autistic so this stuff is a massive deal for me, it seems very dishonest and it's a big shock for me to learn it's normal and what I should be doing. Could I amend my self assessment return to put that in and get a reduction on this year?

400ixl

You can have your own SIPP pension scheme where you can pay into and claim the tax back via that.

I would suggest you get an accountant, even if it is to have a discussion on the best option for your exact circumstances. They can easily save you far more than they would charge you.

lisyloo

Sure you have the option of a pension. You open one up personally and put money into it.

No I don't think you can pay your husband for looking after his own children. That sounds like tax evasion to me.
Who told you that was normal and what you should be doing?

Is it a limited company or are you a sole trader?

thelibrarian11

Ah OK, I have no idea what is normal, I think this is the problem for me and how I've ended up here, I was thinking of some neighbours who have their wives do admin work on their farms, and had just equated childcare with admin and support work - I have a really hard time understanding these things. It was my own autistic head that told me!

I'm a sole trader. Could you give me some examples of what might be something I could deduct from my tax bill, and can I keep amending it for this year as I learn what I'm doing a bit more or is it a bit 'not normal' if I keep updating it? Can you recommend me some resources or other threads on here where I can just go and learn this stuff, I would love to not be so naive about all this any more.

Bookworm105

thelibrarian11 said:

I'm a sole trader. Could you give me some examples of what might be something I could deduct from my tax bill, and can I keep amending it for this year as I learn what I'm doing a bit more or is it a bit 'not normal' if I keep updating it? Can you recommend me some resources or other threads on here where I can just go and learn this stuff, I would love to not be so naive about all this any more.

presumably you understand the basis of being a sole trader
you do work for yourself and your customers pay you money 
in doing that work you may incur expenses 
income - expenses = profit which has not yet been taxed 
you add your profit to the taxable pay you get in your main job and see if the total is below the HR threshold 

the key to expenses is to appreciate that they must be wholly and exclusively business related. Your sole trader is not in the business of looking after children so paying you wife to do so is not a valid business cost.  

it is impossible to advise on what expenses you can claim without knowing what sort of sole trader work you do. There are hundreds of webpages setting out factual info re expenses and how the tax system works, here are some examples: 

Expenses if you're self-employed: Overview - GOV.UK (www.gov.uk)

Self-employed expenses: which allowable expenses can I claim? (with list!) | Unbiased

Expenses if you're self-employed: Office, property and equipment - GOV.UK (www.gov.uk)

Income Tax: introduction: How you pay Income Tax - GOV.UK (www.gov.uk)

Working out your tax | Low Incomes Tax Reform Group (litrg.org.uk)

How to calculate your tax bill - Which?

thelibrarian11

Thankyou so much for your responses, I just need it spelling out to me this clearly and bluntly. I did pay £600 for a mandatory training course and work remotely so I think proportions of internet, electricity etc. are valid, and I paid for a transcription and file conversion tool. If this is all below £1000 do I just forget it and do trading allowance?

Bookworm105

thelibrarian11 said:

Thankyou so much for your responses, I just need it spelling out to me this clearly and bluntly. I did pay £600 for a mandatory training course and work remotely so I think proportions of internet, electricity etc. are valid, and I paid for a transcription and file conversion tool. If this is all below £1000 do I just forget it and do trading allowance?

if those items add to <£1,000 then yes you claim the trading allowance instead of actual costs

be very, very, very careful with "training costs" because they are only allowed where the training is to update an existing skill/qualification. You cannot claim training cost for learning something new for the first time. That is an example of the sort of background knowledge you need and why people pay accountants who already have such knowledge.