Self Employed help please

[loolop]

My DP is just about to take a job where he will be classed as self employed for the first time. He will essentially be a delivery driver being paid a rate of £80 per day. He will be paid on a weekly basis by the company he is working for. The van is provided and maintained and the fuel is all paid for by the company. Sounds employed to me but for tax and NI reasons they want him to be classed as self employed. So can anyone answer these questions for me:

1. How much each week/month should set aside for tax and NI
2. Do we need a business account - he will be paying nothing out of the money he earns towards the business
3. When will we have to pay the first tax bill
4. Is it worth getting an accountant (due to the nature of the job I doubt there will be anything tax deductable)

Ummm sure there is lots more things we don't know but if anyone can answer those it would be a huge help and greatly appreciated!

TIA

Anyone?

it does sound like to their benefit more than his no pension sick pay holiday pay etc..

iirc
you dont need a business account
i'd try and keep 1/4 to 1/5 for tax if you can
tax paid january and july i think..
i paid ni through standing order of my current account (though i never did , a no dependent life at the time..

cant be a great help sorry
i got an accountant cause i cant do forms but it was different type of work and did have lots to claim as genuine work related expenses and worked from home so office was deductable as i rented at the time..
my accountant told me anything related to keep receipts and to give her

is it worth getting back to them and asking if he can talk another driver re some of these issues?

i have form filling / officialdom phobia and was happy to pay
plenty i worked alongside were organised sensible and did it themselves

good luck

Thank you - that is really helpful. It is def more for their benefit as you say no holiday/sick pay etc however he will be earning nearly £400 more per month before tax than his current job or anything else we can find at the moment so it does work out to our advantage too.

Also a lot of places that class you as self employed expect you to supply and maintain a van and pay for petrol so on balance is prob worth the risk (his current job doesn't offer sick pay or pension. It's just a little daunting!

DP is a driving instructor, so self employed and I do all his accounts. My Step father is also a courier and I am setting up a system similar to what DP uses for him - seems to be working so far. It is a doddle really - yours should be similar as I should imagine the incoming/outgoing funds are similar in "type". I will describe what DP does for records/accounts/bills and you can see what fits for you. Warning though, this could be a long post .

1. He has a diary - which he records his income each day, and any costs (e.g. fuel/postage stamps/windscreen cleaning fluid - think of everything). This is his official record for teh Tax man. Probably less important if £80 per day fixed rate.

1. He has a lever arch file in which he keeps all his receipts and invoices (presumably he will paya fee for the van, which he will be invoiced). Use a bulldog clip to keep them all "in oprder" so you can refer back to them if you need to.

1. He has a spreadsheet. Numbered 1-31 down and Apr-March across giving him a 365 day matrix. He actually has 2, 1 for income, 1 for outgoings. It is essentially a duplicate of the info in the diary - but helps enourmously when the tax return comes in.

You will need to pay NI voluntary contributions - this is approx £26 per quarter

He will need to pay income tax. He will get a Tax return next April. He will then be due tax by Jan 31st. At this point he will pay tax for his first financial year + 6m from the next financial year. After your first year you pay 6m worth of Tax evert Jan & July. If you are below a certain threshold you only pay once a year in Jan though. Saving about 25%/20% of his income is about right to save. There is a more precise formula you can use if you want it. The tax return is very easy if you have all of the info above to hand. It is just a case of transferrring the numbers into the right boxes. You don't need an accountant. You don't need a business account either.

The best thing to do - as has been suggested is ask the company for advice. They obv have others that do this.

Also contact your local Tax office and tell them you are going self employed. It will put you on their system and, in our case they sent a tax advisor to talk to DP and show him what was req of the accounts he kept. The matrix I describe above is what they recommended for him (even though others have almost laughed at it I wouldn't do it any other way as it is sooo simple to transfer the data to Tax return).

If you want any more info just shout.

When I say I do his accounts, I should clarify that my job in no way at all involves any accountancy. I am just Joe Bloggs off the street when it comes to the accounts .

Also try and collar some of the childminders on teh board. They are all SE, and may be able to offer more advice.

Sorry Loolop, but being in the accountancy world, I would have said your dh was "employed" if HM Customs & Revenue did a check on him and his employers.

For example - Can he say what hours he wants to work? Can he send someone else in to do the work? As they are supplying the "tools" for him to do his job, it is very iffy. They are just trying to get out of paying the employers NI, sick and holiday pay if you ask me. It's not your dh who will come unstuck here but them (as long as your dh keeps good records and pays his taxes etc).

Have a look at this link here. It will help to guide you.www.lse.ac.uk/collections/financeDivision/vatGuidelinesAndTaxation/taxation/employedVrsSelfemployed. htm

With regard to having to pay his taxes due over, the tax would be calculated from 6th April 2007 to 5th April 2008. His self assessment form would have to be in by 31st January 2009 and he would be expected to pay the tax due plus half of what the HM C&R deem due for the next year (which is half of what he has had to pay for 2007/2008) and then he would have to pay on account again another half in July 2009 in anticipation of his 2008/2009 return. Remember though, if your 2007/2008 tax return is not for a whole year, then the payments on account for 2008/2009 might fall short and he would have to pay in January 2009 the difference and this would up your payments on account for 2009/2010.

SMS - I'm thinking of going se soon. your notes are really helpful.

I am about to ask a really stupid question . the whole point of listing your expenses is that these are taken away from what you get paid in order to come to a figure that is actual taxable income?

so - is there a big list somewhere that tells you what is and what isn't legitimate expenses? the things I am thinking of:

• lunch if I have to travel for the day. what if I only have to travel from the burbs into town but have to stay there all day? can I put my lunch down as an expense?

• travel - what if I want to get a travel card that I use maybe 50 per cent for work?

• same q for office supplies (paper and bloody printing cartridges that seem to run out every other week) and internet connection and mobile phone?

another q: is it easier to open a bank account specifically for work and then transfer some out periodically to your personal account (like paying yourself a salary) or does that in fact just get a bit complicated - esp when it comes to petty cash (I can imagine myself wondering if the tenner in my purse is a work tenner or my own. I think it would start to make my head hurt...)

sorry if this is a hi-jack but I hope it's relevant for loolop

SMS above has said it all really. I did my selfemployed husbands accounts for years and years and had a more complex system as there was VAT to contend with as well (You won't have to worry about that!) You can reasonably claim for quite a few expenses e.g. we always had a chunk for workwear -steel toe cap shoes, wet weather jackets etc. and things like pens, street maps, a mobile phone - anything he needs to do the job.

Always, always keep recipts even if they are just till recipts. Staple small till receipts to a full size sheet of paper so they don't get lost and right the date and the item on the sheet of paper because the receipts are sometimes hard to read.

Finally - Open a high interest savings account and put your 20% for tax into it every month without fail and you will have the money ready at end of January (the worst possible time of year imo when money is short after Christmas) and you will have some interest to keep for yourselves.

Best of Luck

Thank you so much for all your responses - it's so helpful! SMS - what a great idea will be off to Staples today to buy some notebooks and folders. Candlewax I agree with you having read the definitions of employed and self employed on direct.gov but I guess there's nothing he can do about that. He won't get in trouble though will he?

He has gone out today with the guy who has been doing the job for the last 3 years so I have told him to quiz him on how he does things.

Also from what you have said Candlewax we will need to pay 18 months tax in Jan 2009 (or have I misunderstood?) However if he starts March 1st for example and puts away 25% of his monthly wage each month we won't have enough to cover that amount. So should he be putting away more, which will leave us a bit short. Seems unfair to pay tax in advance.

Granny22 - great ideas re expenses - he is going to have to buy a sat nav so will be sure to keep the receipt for that!

As long as none of your earnings fall into the 40% bracket, I've always found that putting away 20% of each invoice/payment gave me enough for tax, although you're right, there is a whammy when you have to pay 18 months at once - for him this will be in Jan 2009, so he might want to put away a bit more in his first year. If he earns over £15,000, he'll need to split down his expenses into subsections (motor / office / marketing etc) but it's still quite simple.

I agree with Candlewax, your DH sounds employed to me, here's another link with questions to establish employment status. IME if there is any doubt about whether someone is employed or self-employed, they are probably employed.

It sounds as though the company are trying to avoid being responsible for employment rights to sick pay, holiday, unfair dismissal protection etc etc.

With the employed/self employed status he does sound employed but they are offering it on a self employed basis which he is prepared to accept is there any problem with this? The fact that he does not get holiday/sick pay is offset by the fact that they are paying a lot more than the employed jobs

Someone else might be able to help with the consequences for your DH if he accepts employment this way. Whatever these might be I would urge him to consider it carefully. We all assume and hope we won't need the protection and support employed status gives us but there comes a time for lots of people when they need it. We are talking about protection in terms of his job, the way he is treated at work, benefits he it entitled to, etc. Your DH's status is not decided by him, so assuming he is employed by that definition, just because the tax isn't being paid correctly doesn't change his status. So he is entitled to those benefits and that protection, but he will certainly struggle to get it.

I hope someone financy can help with the financial/tax consequences but I would strongly urge your DH to consider this carefully.

this message is primarliy to answer hatwomans Qs....sorry for hijack.

Sorry I wasn't on yesterday.

Right.

Allowable expenses... there is a list on hmrc ewbsite - but that is down so I shall try and remember to post like tomororw.

Basically you do a sum which is

Income - Allowable expenses = Profit

You pay tax on your profit.

BUT you have to break it down for your tax return. If you Net turnover (i.e. income) is greater than £15K you have to break down your expenses into categories (for eg. stationary, vehicle costs, raw materials salary - including your own; there is also a full list on hmrc). If your turnover is less that £15K you basically give 2 total figures - income and expenses which is much easier.

WRT to things that are used for work and for business you have to calculate what proportion is business use - and claim the appropriate value. For example we claim 50% of PC related items. DP writes down his business mileage and personal mileage each week. It usually works out that 95~% of his milelage is business so he claims 95% of all car expenses: fuel, tyres, maintenance, car wash, air freshener.....

Incidentally in most industries you claim a mileage allowance - which is fixed rate, published by hmrc each year. In which case you have to keep a log of business milage seperate from personal mileage. However, because DP is a driving instructor his car is his job so he can claim everything as itemised bills and recoup the 'actual' cost of running the car.

You may find it helpful to download the Tax return form (SE pages) and notes so you can see what will be expected of you and you can set up your accounts accordingly. You may find it helpful to have 1 spreadsheet per "expenses category".

Also if you are working from home you can claim a small amount towards utility bills. I think Tax man told DP £2/week about 6yrs ago He is npw claiming £3/week I think. I guess it depends how much work you are doing form home.

WRT to business account - it really doesn't matter. At the end of the day you don't need to keep records of petty cash as such if you are a sole trader. You just 'submit' all your relevant receipts. You pay tax on all of your profits so it doesn't matter if that is in a business account or a personal account.

DP used to keep all his earnings seperate and bank it seperate from personal cheques etc. (but into same persoanl account) - but we just found it a faff TBH.

I will post the relevant hmrc links over the weekend when website is back up

ANy more Qs, just shout.

right some links...

general info

SE pages of form.

SE form notes

allowable expenses are in this one

\list{http://www.hmrc.gov.uk/sa/forms/net-06-07.htm\lots of other notes sheets} - scroll down to Self employment section for relevant ones.

Business link are also very useful

Sorry lots of links, but browse through the releavnt ones.

thanks lots for these slightlymad - really useful.

No probs.

It can be difficult to find what you want on the hmrc website unless you know specifically what you are looking for.

Happy reading