Really Need advice .. self employment advice!

piratess

My OH has been offered to work for himself alongside his lifelong friend in his scrap haulage company!

anyway My OH works fulltime for a company at the moment and is really not sure which way to turn!

He has been told that he would be put thro his HGV test (no cost to him) and then he would earn £450 a week self employed!

What i want to know is......... how the tax works?? how much out of that £450 would go to the tax man? Would we still be able to claim child tax credits?

also how does he go about taking the leap? this really is a tempting offer for him as he has always wanted to go out on his own but hes scared as he doesnt know all the ins and outs and is a very logical man!

any help or advice opinions etc would be wonderful!

Conor_3

When you're self employed, you pay a bill annually, not weekly. He would have to set aside an amount every week - preferably in a high interest ISA - and resist the temptation to spend it.

He would have to pay £27 quarterly in Class 2 NI contributions. Every year a tax return would have to be filled in and from that, Class 4 NI and Income Tax is calculated. Basically on £450 a week or £23,400 a tax/C4 NI bill would be roughly £4500. The first January following a year after starting, when the first SE tax is due, in the January he would be expected to pay that amount plus an additional 50% of it "on account" for the following tax year with another 50% payable by 31st July so if he started this April, he would have a tax bill payable by Jan 31st 2010 of £6750 plus another payable by July 31st 2010 of £2250.

Now the fact he'd pay no tax until 31/1/2010 may sound bloody brilliant, he'll still have a tax bill the following January after the financial year he ends SE so not only would he pay tax on his wages through PAYE as normal, he'd have a tax bill as well for the previous financial year.

Also remember though, being Self Employed, there's no paid holidays, no paid bank holidays and no sick pay if you're off sick. In addition to that, there's expenses involved in being self employed such as accountancy fees, stationary and insurance such as Public Liability.

The main benefit of going self employed is if there are a lot of expenses you can offset to reduce your tax. In his case, he may not actually legally qualify as self employed and there aren't going to be the tax reductions there to compensate for what he loses through not getting holiday pay. He may want to read this : http://www.hmrc.gov.uk/pdfs/ir56.htm#4 before deciding whether to go for it because if HMRC investigate, both he and his friend could end up with a big bill and fines if they decide he's not self employed.

Regarding Tax Credits, they're payable the same as if he was employed.

piratess

Gosh this is all so confusing! ........

With the amount offered would you think its worth while going for ? hes bringing home 1,100 a month at the moment after tax ......... This really does confuse me !

Seems we would have to save a % each week and leave it! do you know if the tax works out at the usual 25% or would it be different?

sorry if i sound thick!

Conor_3

Putting away an amount every week and leaving it there is what a lot of SE people either fail to do at all or find it hard not to touch when the fridge packs up etc.

Personally, I think there's no benefit as there's no expenses to offset and the costs of doing it and loss of holiday pay outweigh the tax deductable expenses there would be.

Tax is the same as you get taxed now unless you set up a Ltd company where it gets a bit more complicated so I'll not go into that. The same rates and thresholds apply as PAYE. The only difference is you're responsible for paying it rather than it being taken out of your wages each week and the employer paying it.

His mate is doing it to benefit himself. He gets to have an employee and save himself £99 a week which it would cost him on top of the gross pay in holiday pay provision and Employers NI (not the same as the NI which is deducted from employees wages) based on £450 a week. He also gets out of all the other statutory obligations and hassles that employing people brings.

fengirl_2

To add to what Conor says, I would check with HMRC that they are content that this is true slef employment. As Conor points out, the employer under this arrangement absolves himself of all responsibility for your OH. Therefore there will be no sick pay, paid holidays, no employment rights, so he can be let go at any time. From the rest of your question, it looks as if your family is not terribly financially secure, so think carefully before he goes into this arrangement.
If he is treated as self employed without HMRC's consent, then the employer will be liable for the tax and NIC.

Conor_3

And to expand on what fengirl has said, I don't think it actually would count as self employement. For example, would he be able to choose his own hours or send someone in to do the job instead of him?

divorcingjack

I don't want to put a downer on your plans, but from bitter bitter personal experience, I would adise you to think VERY VERY carefully before going into business with friends.

I'm currently pursuing a £2000 debt from an ex-friend that I did some work for a year ago. I never would have thought he would turn the way he did - I have copies of abusive emails and texts accusing me of being work-shy, lazy, manipulative and a liar.

Of course, you don't know - I might be all these things .. but I'm not! :rolleyes:

The best friendships can be poisoned by business. - have a look through the forums at UKBF for other experiences.

If you do go for it, make sure you get a watertight contract drawn up by an independent professional detailing what happens in the event that everything goes wrong. Debt liability, assets. etc.

Also keep a close eye on the accounts - this was the basis of my downfall - he was squirrelling away all the business assets.

Anyway .. just be selfish and plan for the worst.

I wish you all the best.

dj

PS: tax is fantastic when self-employed!