Working out my taxes as self employed

Fedcas65

eskbanker said:

Fedcas65 said:
Interesting, so basically the amount "saved" with being self-employed could go in the private pension (or in my pocket for further private investments), the numbers quite match my current pension contribution, so it makes sense for me to be self-employed if I take at least 575 per day, but registered how? Shall I open my private limited company or as sole trader?

After a quick search, a private limited company is much better, though I may need to wait a couple of weeks for the story of dividends/PAYE and the VAT.

As above, there are pros and cons of sole trader versus limited company, and you'll find plenty of articles by searching for those five words, including a simple table at https://www.gov.uk/set-up-business

In terms of comparing employment income with self-employed, pension contributions are indeed an important consideration but there are plenty of others to factor into the evaluation, including holiday pay, sick pay, insurance, accountancy costs, etc, which can and do eat into the apparently substantial variance between headline day rates.

Thank you, yes, I already accounted the holiday, sick pay, accountancy cost, unfortunately I won't get benefits so something extra will be there, but it won't break the bank account, it's still widely manageable.

Fedcas65

Question, I'm not sure if another thread is better for this, but what kind of figure/person would be the best to introduce me to this world of being self-employed? Or even drive me through? I don't want to make mistakes, despite I'm trying as hard as possible to get all the info but I don't want to go mad and leave out thing behind at the same time.

I've been reading all the government resources and I've got the following questions:

1. In this financial year, I'd be employed for 10/12 months, if I register the company now, what would happen next? Shall I do my tax assessment and how it would be calculated in the case I don't find any "contract" job up to the end of the financial year? I want to register the company now because I don't want to apply for jobs and I'm not ready with my company
2. It seems that a ltd company is what I need, but there are too many things to know, like the immediate next steps, I should get my unemployment insurance for a while, in my knowledge is not taxed, but what about me having a ltd company?
3. I'd register the company at home and that would luckily be the location of my work, but it may change with different contracts in future (either partially or absolute)
4. Do I need any special insurance? My home insurance may not pay for customers etc, gladly no one will come here as I work remote, but I may also visit customer locations, maybe even regularly, so does my home count as location of business? Does it go in percentage of weekly hours of work? In that case, I need to inform my home insurance to see if they cover it
5. What about my mortgage? I know I need to phone the bank, but I don't want to end up in a situation where I already registered the company and then I'll get serious irreversible troubles with either the home insurance or the mortgage itself
6. CGT in case of sale... In my situation, as I may need to sell my house soon, apparently I need to pay taxes if one room is dedicated to the job, well it's obvious that one room is a office and that's valid for pretty much everyone out there, but I may always declare that I work wherever with my laptop, so how would that work? More importantly, I don't have only my office hardware there, I also have my stuff, other monitors, my computer etc...
7. VAT... These are the criteria. You must register if either:
- your total taxable turnover for the last 12 months goes over £90,000 (the  VAT  threshold).- you expect your taxable turnover to go over £90,000 in the next 30 days.If I consider the gross income of my current year as employed, it doesn't go over 90kI can't expect to get 90k in the next 30 days, but I may expect to get more than 90k in the next 12 months, or next financial year as we're close to it, would that count?
8. I want to register as PAYE and I also want to be able to pay dividends, so as employer I pay dividends to me, do you know any accountancy service that makes this easy? I can't go crazy for this stuff, on the paper it seems all easy, but as there are fines for any mistakes, I need to make the entire story super easy, whatever is the cost... It has to be painless. Gemini says the following about the leverage between PAYE and dividends, is it correct? The Optimal Hybrid Strategy (2025/26 Tax Year)
   Most accountants recommend a combined approach to maximise take-home pay and secure future state benefits. 
   • Pay a small salary up to the personal allowance threshold (often £12,570 for 2025/26). This ensures you gain qualifying years for your State Pension without incurring significant Income Tax or NICs.
   • Extract the remaining funds as dividends from the company's post-tax profits. This portion benefits from the lower dividend tax rates and the annual tax-free dividend allowance (£500 for 2025/26). 
   This strategy provides the stability and benefits of a salary while leveraging the tax efficiency of dividends, resulting in a lower overall tax burden for the director and the company. 
9. I may not become a contractor after all, which means I may become an employee again, so I wonder if the costs in the order of hundreds of pounds is all I need to open the company, I just hope I didn't miss anything that it's in the order of a few thousands, because that would crack me down, thanks.

If I need another thread for all this, just let me know.

QrizB

What line of work are you expecting to be in?

Will you be dealing with the public, or with other businesses?

Fedcas65

QrizB said:

What line of work are you expecting to be in?

Will you be dealing with the public, or with other businesses?

I'd be working in IT, fully remote in most cases I guess, but I may need to go to the office twice a week for some customer in future, so things may change.

I won't be dealing with the public directly, unless the company has services that serves the public sector, but I don't think it impacts me as I'll be dealing with the company, not their clients.

In most cases, I'd be dealing with businesses that provide whatever service to their customers/clients, can be an online food shop, a social network, network operator, whatever...

eskbanker

Fedcas65 said:

Question, I'm not sure if another thread is better for this, but what kind of figure/person would be the best to introduce me to this world of being self-employed? Or even drive me through? I don't want to make mistakes, despite I'm trying as hard as possible to get all the info but I don't want to go mad and leave out thing behind at the same time.

There's no harm in asking individual specific questions about tax on a forum like this, but if you're looking for a comprehensive beginner's guide to contracting then your best bet will be to research extensively online, as there are resources at many sites like:

http://www.contractoruk.com/
https://www.itcontracting.com/

If you're after a more personal service then they'll be able to point you in the right direction....

monkey-fingers

Oh blimey, I didn't realise you were working in IT. I fear your expectations are ridiculously high and the market is horrendous.

Even less likely to get an outside IR35 role, particularly remote.
Most outside IR35s these days are working for restricted/secure customers and at best will be hybrid.
No-one is prepared to take the risk of the IR35 trap otherwise unless you're working for multiple clients at once (which doesn't sound like your brief)

If you ARE going down the outside IR35/Ltd company then you will need Personal Indemnity Insurance (mine is about £218 a year), plus I would heavily recommend IR35 insurance (mine was included). You also need to be VAT registered. Ignore whether you'll make the £90k in year one, it just makes sense.

In addition, your numbers are completely out. You're thinking like an an employee paying 20/40% tax. It doesn't work this way when you're working for yourself. It's a lot more complicated, but you pay less tax.

I'm getting no kickback and I have no link to the company other than they're my accountants, but I'd Google Tech Accounting (the .co.uk) if you are going down the outside route. They're specialists in the area. At £100+VAT per month, they're worth every penny.

But you also need to stop thinking like an employee and like someone running their own business.
Doctors appointments etc.? As an outside IR35, you work for yourself and deliver to a list of outcomes. Although it might say 8 hours per day, they don't tell you when you do and don't work.

Outside IR35 are not employees or act like it - otherwise they'd be inside. They're consultants, paid to deliver things rather than hours.

monkey-fingers

eskbanker said:

Fedcas65 said:

Question, I'm not sure if another thread is better for this, but what kind of figure/person would be the best to introduce me to this world of being self-employed? Or even drive me through? I don't want to make mistakes, despite I'm trying as hard as possible to get all the info but I don't want to go mad and leave out thing behind at the same time.

There's no harm in asking individual specific questions about tax on a forum like this, but if you're looking for a comprehensive beginner's guide to contracting then your best bet will be to research extensively online, as there are resources at many sites like:

http://www.contractoruk.com/
https://www.itcontracting.com/

If you're after a more personal service then they'll be able to point you in the right direction....

I'd also recommend the Contractor Reddit. You'll sadly find out how difficult it is!

Fedcas65

monkey-fingers said:

Oh blimey, I didn't realise you were working in IT. I fear your expectations are ridiculously high and the market is horrendous.

Even less likely to get an outside IR35 role, particularly remote.
Most outside IR35s these days are working for restricted/secure customers and at best will be hybrid.
No-one is prepared to take the risk of the IR35 trap otherwise unless you're working for multiple clients at once (which doesn't sound like your brief)

If you ARE going down the outside IR35/Ltd company then you will need Personal Indemnity Insurance (mine is about £218 a year), plus I would heavily recommend IR35 insurance (mine was included). You also need to be VAT registered. Ignore whether you'll make the £90k in year one, it just makes sense.

In addition, your numbers are completely out. You're thinking like an an employee paying 20/40% tax. It doesn't work this way when you're working for yourself. It's a lot more complicated, but you pay less tax.

I'm getting no kickback and I have no link to the company other than they're my accountants, but I'd Google Tech Accounting (the .co.uk) if you are going down the outside route. They're specialists in the area. At £100+VAT per month, they're worth every penny.

But you also need to stop thinking like an employee and like someone running their own business.
Doctors appointments etc.? As an outside IR35, you work for yourself and deliver to a list of outcomes. Although it might say 8 hours per day, they don't tell you when you do and don't work.

Outside IR35 are not employees or act like it - otherwise they'd be inside. They're consultants, paid to deliver things rather than hours.

Thanks for your message.

Yes, the situation out there is very grim .

About the payments and taxes, I understand the difference between all these things, but I mention always payment/income/salary in the sense of me getting an income to eat, I don't care how it comes in my bank account, but yes, I've seen online the differences, the tax process, the less NI contributions as outside IR35, the dividends possibility, the rules inside IR35 (basically an employee of a PITA umbrella company) etc...
I did some homework .

I'm also aware that I'm not paid for sick leave, doctor appointment, eye visit, PITA visit , holiday etc, I already factored everything before opening this post in terms of money in my bank account (but probably I didn't explain it), I was concerned about the process, liabilities, unknown costs etc.

In IT you may be asked to be on call for example, or present in a specific time (which I'd say is normal), it's not only about delivering something at your own time, unless I misunderstood.
For example, someone asks me a product feature, or a to rearchitect a solution, I'm pretty sure everyone will want to see me "online" in working hours, or at least in "core" working hours, and if I don't respond, chances are that they won't like it.
I don't think you can go to the gym/spa whenever you want, or cut your hair, if by any chance you were referring to this, I know many contractors do this and no one cares, but it depends if you client allows it and if you have a good relationship with him.
At the basis, I think that any contract would include the working hours, not just like "8h", but with timeframe too.
This is my perception though, I don't have experience with a ltd company.

monkey-fingers

Fedcas65 said:

monkey-fingers said:

Oh blimey, I didn't realise you were working in IT. I fear your expectations are ridiculously high and the market is horrendous.

Even less likely to get an outside IR35 role, particularly remote.
Most outside IR35s these days are working for restricted/secure customers and at best will be hybrid.
No-one is prepared to take the risk of the IR35 trap otherwise unless you're working for multiple clients at once (which doesn't sound like your brief)

If you ARE going down the outside IR35/Ltd company then you will need Personal Indemnity Insurance (mine is about £218 a year), plus I would heavily recommend IR35 insurance (mine was included). You also need to be VAT registered. Ignore whether you'll make the £90k in year one, it just makes sense.

In addition, your numbers are completely out. You're thinking like an an employee paying 20/40% tax. It doesn't work this way when you're working for yourself. It's a lot more complicated, but you pay less tax.

I'm getting no kickback and I have no link to the company other than they're my accountants, but I'd Google Tech Accounting (the .co.uk) if you are going down the outside route. They're specialists in the area. At £100+VAT per month, they're worth every penny.

But you also need to stop thinking like an employee and like someone running their own business.
Doctors appointments etc.? As an outside IR35, you work for yourself and deliver to a list of outcomes. Although it might say 8 hours per day, they don't tell you when you do and don't work.

Outside IR35 are not employees or act like it - otherwise they'd be inside. They're consultants, paid to deliver things rather than hours.

Thanks for your message.

Yes, the situation out there is very grim .

About the payments and taxes, I understand the difference between all these things, but I mention always payment/income/salary in the sense of me getting an income to eat, I don't care how it comes in my bank account, but yes, I've seen online the differences, the tax process, the less NI contributions as outside IR35, the dividends possibility, the rules inside IR35 (basically an employee of a PITA umbrella company) etc...
I did some homework .

I'm also aware that I'm not paid for sick leave, doctor appointment, eye visit, PITA visit , holiday etc, I already factored everything before opening this post in terms of money in my bank account (but probably I didn't explain it), I was concerned about the process, liabilities, unknown costs etc.

In IT you may be asked to be on call for example, or present in a specific time (which I'd say is normal), it's not only about delivering something at your own time, unless I misunderstood.
For example, someone asks me a product feature, or a to rearchitect a solution, I'm pretty sure everyone will want to see me "online" in working hours, or at least in "core" working hours, and if I don't respond, chances are that they won't like it.
I don't think you can go to the gym/spa whenever you want, or cut your hair, if by any chance you were referring to this, I know many contractors do this and no one cares, but it depends if you client allows it and if you have a good relationship with him.
At the basis, I think that any contract would include the working hours, not just like "8h", but with timeframe too.
This is my perception though, I don't have experience with a ltd company.

As I keep saying, you're thinking like an employee. Not B2B which is what a Ltd company is.
It provides services. If you're on-call, then you're probably not outside IR35.

If I go out and get my haircut, I'm not telling anyone, unless I'm due to be in a meeting (and I probably do about 20% of the project meetings as again, I'm simply providing a service). There is NOTHING in my contract that says what hours I work. If I'm live on Teams, people are more than welcome to message me (and they do)

In addition, strictly, to be outside, you can theoretically provide someone else to do the job or outsource it.
Go have a play with the CEST adjudicator. It might give you an idea what to look for.
https://www.gov.uk/guidance/check-employment-status-for-tax

Fedcas65

monkey-fingers said:

Fedcas65 said:

monkey-fingers said:

Oh blimey, I didn't realise you were working in IT. I fear your expectations are ridiculously high and the market is horrendous.

Even less likely to get an outside IR35 role, particularly remote.
Most outside IR35s these days are working for restricted/secure customers and at best will be hybrid.
No-one is prepared to take the risk of the IR35 trap otherwise unless you're working for multiple clients at once (which doesn't sound like your brief)

If you ARE going down the outside IR35/Ltd company then you will need Personal Indemnity Insurance (mine is about £218 a year), plus I would heavily recommend IR35 insurance (mine was included). You also need to be VAT registered. Ignore whether you'll make the £90k in year one, it just makes sense.

In addition, your numbers are completely out. You're thinking like an an employee paying 20/40% tax. It doesn't work this way when you're working for yourself. It's a lot more complicated, but you pay less tax.

I'm getting no kickback and I have no link to the company other than they're my accountants, but I'd Google Tech Accounting (the .co.uk) if you are going down the outside route. They're specialists in the area. At £100+VAT per month, they're worth every penny.

But you also need to stop thinking like an employee and like someone running their own business.
Doctors appointments etc.? As an outside IR35, you work for yourself and deliver to a list of outcomes. Although it might say 8 hours per day, they don't tell you when you do and don't work.

Outside IR35 are not employees or act like it - otherwise they'd be inside. They're consultants, paid to deliver things rather than hours.

Thanks for your message.

Yes, the situation out there is very grim .

About the payments and taxes, I understand the difference between all these things, but I mention always payment/income/salary in the sense of me getting an income to eat, I don't care how it comes in my bank account, but yes, I've seen online the differences, the tax process, the less NI contributions as outside IR35, the dividends possibility, the rules inside IR35 (basically an employee of a PITA umbrella company) etc...
I did some homework .

I'm also aware that I'm not paid for sick leave, doctor appointment, eye visit, PITA visit , holiday etc, I already factored everything before opening this post in terms of money in my bank account (but probably I didn't explain it), I was concerned about the process, liabilities, unknown costs etc.

In IT you may be asked to be on call for example, or present in a specific time (which I'd say is normal), it's not only about delivering something at your own time, unless I misunderstood.
For example, someone asks me a product feature, or a to rearchitect a solution, I'm pretty sure everyone will want to see me "online" in working hours, or at least in "core" working hours, and if I don't respond, chances are that they won't like it.
I don't think you can go to the gym/spa whenever you want, or cut your hair, if by any chance you were referring to this, I know many contractors do this and no one cares, but it depends if you client allows it and if you have a good relationship with him.
At the basis, I think that any contract would include the working hours, not just like "8h", but with timeframe too.
This is my perception though, I don't have experience with a ltd company.

As I keep saying, you're thinking like an employee. Not B2B which is what a Ltd company is.
It provides services. If you're on-call, then you're probably not outside IR35.

If I go out and get my haircut, I'm not telling anyone, unless I'm due to be in a meeting (and I probably do about 20% of the project meetings as again, I'm simply providing a service). There is NOTHING in my contract that says what hours I work. If I'm live on Teams, people are more than welcome to message me (and they do)

In addition, strictly, to be outside, you can theoretically provide someone else to do the job or outsource it.
Go have a play with the CEST adjudicator. It might give you an idea what to look for.
https://www.gov.uk/guidance/check-employment-status-for-tax

What do you mean by "I'm simply providing a service"?
What's a service precisely?

I could be developing (even not extensively), I could improve the security, cost optimization, re-architect some solution, many kind of improvements basically, would those be counted as services?

Keep in mind that these can be provided by employees too, and obviously they've employees already that do those tasks, that's usually the case.
On top of it, in IT there is always on call, I may be spared for that, it's just not guaranteed, though I'll be sure to have it specified in the contract as it can change the game for my other responsibilities, aka workload .

I did the CEST validation, I qualify for Off-payroll working rules (IR35) apply, but that's obvious to me, I specified the way I work and for taxation reasons I'm obviously outside IR35, I thought that this tool was to evaluate the kind of tasks and responsibilities that I can or can't carry , that's why I was asking if I'm even allowed to perform what the current employees are performing.
The reason is simple, sometimes contractors are there to fill up a position for a while, or to replace a maternity/paternity leave, or simply to hopefully improve things, and improvements are always unlimited, but I doubt that those things will be written in a contract, like if I don't deliver, then they won't pay me, LOL, in my environment many of the most crazy requests from idiots on top don't even get started .