Help! Do I Need To Complete A Tax Return?

[WeRunThisMother]

For the past 18 months I've been doing an small admin job for a friend. It takes me 2-3 hrs a week and I get paid £15ph.

I haven't filled in a tax return in this time because I didn't think I needed to as I don't earn anywhere near the minimum limit but I was talking to a friend today who thought I did need to return one.

I invoice my friends company and the company then pays me straight into my bank account. I don't get a payslip or anything.

Does anyone know if I need to complete a tax return? If I do need to, will I get in trouble for not doing one earlier?

Am I self-employed or just employed?? I'm not registered with anyone.

I'd like to be able to declare my wages for when our mortgage deal ends next year. I told Tax Credits as soon as I started my job so that parts all above board!

Thanks for your help in advance.

Tricky. If you are paid without any NI or tax removed by the company then they are treating you as self employed. I.e. You are responsible for your own tax and NI, you don't get sick, maternity or holiday pay, etc.

So, yes, you're self employed, (classed as a sole trader), you should tell HMRC that you are and when you started being self employed. You will need to do a tax return. If you're under the personal allowance you won't have to pay tax. But you must tell them and do a return. if you've been taxed elsewhere e.g. On savings interest, you could get it refunded. I think you should also be paying NI too. Look on DirectGov for info about the above.

But your friend's company needs to give you a contract that makes it clear that you are not an employee e.g. You should be allowed to pay someone else to do the work - otherwise you should be on their payroll with the rights that go with being an employee. Inland Revenue can require them to pay backdated NI and tax otherwise!

Just seen the 18 months part. If that means you were self employed and invoiced before 5th April 2011, then it could be a problem because you should have done a tax return for 2010/2011 by end of Jan this year. Otherwise you have until end Jan2013 to do your 11/12 tax return. I think you're supposed to tell them you're self employyed within a certain period of starting too. I think you need to speak to an accountant ASAP to get their advice, or someone like BusinessLink? You don't want to trigger an investigation or a fine when it's a case of not knowing you needed to register and do returns.

This is a complex question and difficult to answer fully. In short, you need to definitely do a tax return if your income is over £8,105 and you haven't paid tax on some of it. If you're self-employed you should also pay class 2 NI, although you can get an exemption from that if your total income from the self-employment doesn't exceed £5,595 you can apply for an exemption. Don't forget to deduct expenses before trying to figure out your taxable self-employment income.

Whether you're employed or self-employed is a more difficult question. HMRC have got an indicator tool on their website which isn't perfect for your circumstances but may give you an idea what HMRC thinks or your employment status. I'm on my phone so can't link to it but if you google for ESI HMRC then it should take you to it. Bear in mind that if you're considered employed your employer is responsible for the tax on your salary, should give you holidays, sick pay etc.

If you consider yourself self-employed you should have notified HMRC by completing form SWF1. This would trigger them sending you a tax return and you completing it. It may well be that you have no tax to pay but usually HMRC wants you to complete one anyway during the period of self-employment. I've heard of people convincing them that they don't need a tax return (even when self-employed) because their earnings are so low but have never seen it happen in my years of working in tax.

Heh... Bit of a cross-post. Self-employment normally needs to be notified within 3 months. Not sure if HMRC ever enforce the penalties they're entitled to. Normally they just send out a return and expect it back by normal deadline if it's for 11/12 and 3 months from date of issue if it's previous tax year's return. (at least that's what I've seen but they may have changed their procedures)

Thank you for your replies.

I've looked at the ESI calculator riksti and it says I'm an employee. Maybe because I only do work for that company?

I've also looked on incometaxcalculator.org.uk and put in my salary and it says that I don't need to pay any NI or tax so does that mean that the company doesn't need to pay any either?

I think because the lady who did my job before me had her own company so was self employed, they just thought they'd pay me the same way and don't realise I'm actually an employee.

Are they supposed to give me a payslip instead of me invoicing as I'm an employee as well as a contract etc? Then I could have a P60 to prove my income to mortgage company.

Thanks again.

The ESI calculator is just an indicator and was originally developed for building trades (I think) which is why I said it's not perfect for your circumstances.

If you don't have another job/pension and your total income from this one is around £2,000 the employer wouldn't have to pay any tax either. However, you being an employee would mean that they've got other obligations under employment legislation (holidays, maternity leave, redundancy etc). So from your point of view employment is preferable, from theirs self-employment is.

Like you say they have currently treated you as a self-employed individual and you've agreed with that treatment so I'd say you still need to notify HMRC that you've got income for the period already passed. Where you go from here is up to negotiation. If you're happy with the self-employed status then I'm not sure it's worth changing anything. HMRC may think you're employed when looking at the facts but they're unlikely to pursue you or your friend if no tax is at stake.

Best thing to do is ring HMRC and they will tell you what to do.

You dont need an accountant. Just explain the circumstances. Ask them for the name of a person or dept to write to and make a declaration by letter saying what you earned and that your 'employer' does not pay NI on your behalf. It is up to HMRC to define what is employment or self employment. It is not up to you.

And in answer to your last question - they are not actually required to give you a P60 if this is your only employment and you earn less than £107 pw.

MoreBeta - it is not up to HMRC to decide. It's actually up to the employer/customer. So the OP's friend is the one who needs to determine the status. Up till now they've treated it as self-employment so OP needs to report on this basis.

riksti - HMRC make the rules. Not you. Your duty is to inform them what you earn and the circumstances. They will tell you if they regard you as employed or self employed. There are a lot of complex rules round this.

MoreBeta - HMRC do not make the rules. The parliament does. Can I just refer you to the first sentence here for proof that even HMRC thinks it's the employer's job to establish the employment status.

This is the important part of that web page:

"This guide explains how to work out whether a worker is an employee or self-employed. It lists the key factors that affect employment status, and it explains how HM Revenue & Customs (HMRC) can help you get it right if a worker's status isn't clear."

Yes it is your responsibility and you can discharge that responsibility by notifying them and asking for advice. HMRC routinely challenge instances where firms define workers like IT contractors as 'self employed' when in fact theyare employees in all but name.

Employers defining workers as 'self employed' to avoid paying NI is a well known issue.

Apologies for the previous message - it went way off topic.

MoreBeta - this isn't really relevant to the OP as it's the employer's responsibility. However, I wouldn't recommend to anyone that they contact HMRC for an opinion unless mandated by law or procedure. HMRC is not an unbiased organisation giving the optimal advice to taxpayers.

When I needed help, I went to my local tax office and sat with an advisor to work out how best to deal with my situation, which was a lot of fun - not at all straightforward! I ended up having to fill in 1 employment sheet and 2 self-employed sheets (different jobs) as well.

You could try doing that if you don't get clear responses on here. From my extremely limited personal knowledge, I would say if you're invoicing a company then you still count as self-employed - one company I worked for, I started off by invoicing them (self employed) and then after about 15m I went on their books and became an employee, at which point I no longer needed to invoice them.

A persons employment status is not a matter to be decided either by an engager or HMRC, it is a matter of fact which may be determined by a court. Of course in practice the decision is made by the engager. HMRC may challenge this decision, but they will not challenge where the employment status tool has been used correctly or a completely informed Status Officer has made a ruling.

And the three month period for self employment notification no longer exists, you should notify HMRC straight away but there is no penalty if notification is made by 5 October following the end of the tax year.

But this is very off topic.

Although there is not a lot here to go on, I would think it is likely that you are an employee. Because this is your only job and you are paid less than £102pw your employer does not have to operate PAYE or give you a P60; they should however give you payslips although all they would have need to have on them is the amount you are being paid so there wouldn't be much point.

The company is probably treating you as self-employed which is probably wrong; if you are an employee they should be paying you holiday pay. However this is a very common situation and I wouldn't suggest you do anything about it. As an employee you do not have to complete a tax return unless HMRC asks you to.