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How do you become self employed?

businesswoman is very multitasking

The UK saw the fastest growth in self-employment in Western Europe in 2014, according to the Institute for Public Policy Research (IPPR).

The number of self-employed workers rose by 8%, faster than any other Western European economy, and outpaced by only a handful of countries in Southern and Eastern Europe.

The IPPR’s analysis shows that the UK – which had low levels of self-employment for many years – has caught up with the EU average. If this growth continues, it says, the UK will look more like Southern and Eastern European countries which tend to have much larger shares of self-employed workers.

Your responsibilities

You’re responsible for:

Naming your business

You can use your own name or trade under a business name – read the rules for naming your business.

You must include your own name and business name (if you have one) on any official paperwork, like invoices and letters.

When should you get help from an Accountant?

Often business owners wait too long before they realise that they need help from an accountant.

Key reasons are:

– not understanding the difference between a book keeper and an accountant
– thinking that an accountant will just be an extra cost – the reality is that most accountants will save the business many times their cost
– thinking that accountants are just bean counters.

But if you choose a qualified and experienced accountant they can bring huge benefits: management tools to improve profitability, cost controls, tax savings, growth strategies, business planning, business structures and much more. So don’t wait too long – getting an accountant should be a priority for all businesses!

Common Mistakes

First off – not having a separate bank accounts. Many start ups try mixing business and personal transactions in their personal bank accounts, its a total nightmare, don’t do it, get a business bank account. Mixing things up will almost certainly have tax implications.

Not registering for tax or filing returns is another one. Getting things right at the beginning is extremely important and a CIMA Accountant can make sure that you choose the right business structure and will help you register for VAT, PAYE, CIS and other taxes. Choosing the right VAT scheme will save you tax. Not registering and filing returns will have severe consequences and lead to fines and penalties.

Also – contract mistakes. Ask your Accountant to review your contracts, they will be able to give you lots of useful tips.

Running out of cash: draw up a Budget and Cashflow and forecast how much cash you will need to run the business, looking at your cash cycle and managing it will be vital. If you need funding ask your Accountant for help, they will be able to look at all the options and help you choose the option that’s best for your business.

Accounting – many start ups fail to keep control of their accounting, by working with an accountant and using Debitoor or Sage One you can avoid this problem.

steve@bicknells.net

Hobby Trading Losses

You might think you have a business, but HMRC can disagree with you.  If HMRC considers that you are never going to make a profit, they will also refuse any loss relief.

Losses and profits

You might think that HMRC is being unfair in refusing loss relief, but if your activity is a hobby you won’t have to pay tax on profits either.  This rule can be tricky as revealed in the case of P, when  HMRC dismissed his claim for loss relief.

Trade or personal loss?

HMRC challenged P’s claim at a tribunal because in its view it related to non-business transactions and so was a personal financial loss and not one arising from a trade. Non-trading losses can’t be set against taxable income and it’s not just HMRC being difficult.

Trading tests

HMRC and tax specialists refer to the so-called “badges of trade” to decide if a trade exists. These tests were set out in a court judgment decades ago, but remain valid today. One of the tests to establish if a trade exists is that there must be an intention to make profit from a business. In P’s case the tribunal extended this test a little further.

Incapable of making a profit

P started two “businesses”, neither of which made a profit because, in the tribunal’s view, he was inexperienced and couldn’t devote enough time to them. Neither venture was capable of making a profit without P reducing the hours he spent in his main job. In essence P didn’t have the business acumen or time to devote to making his business profitable.

Putting the boot on the other foot

The ruling in P’s case is useful, not just for guidance on when losses are deductible, but for countering HMRC if it claims money you make from a hobby is taxable. Its view has always been that if you advertise your hobby in a newspaper or online you’re probably trading. But the tribunal’s judgment, supported by HMRC, dispelled that idea. If you don’t have the time or intention to carry on a trade, profit you make from isolated sales isn’t liable to income tax.

Turn your hobby into a business

For advice on converting your hobby to a profitable business, including help with setting up a limited company or registering for VAT, please contact Alterledger.

Say goodbye to small earnings

Say hello to small profits

HMRC has changed the name of the threshold for paying Class 2 National Insurance from the Small Earnings Limit to the Small Profits Threshold.  If you earn less than £5,965 in 2015-16 you won’t need to pay Class 2 NI, but if you do, it will be calculated as part of your 2015-16 tax return and due with the rest of your tax by 31st January 2017.

English: British National Insurance stamp.

English: British National Insurance stamp. (Photo credit: Wikipedia)

Alterledger can help

For more information on filling in your tax return, contact Alterledger or visit the website alterledger.com to see if you can organise yourself better and cut your tax bill.
 

Self Employed National Insurance

Changes to payment of National Insurance

HMRC has announced changes to the way that the self-employed will pay their Class 2 and Class 4 National Insurance Contributions (NIC).  This is not the first time the process has changed.  Some people still refer to paying their stamp – in days of old you had to buy special stamps for your NIC!

English: British National Insurance stamp.

English: British National Insurance stamp. (Photo credit: Wikipedia)

No new direct debits

Until recently I would have encouraged the self-employed to set up a Direct Debit Instruction (DDI) with HMRC to pay their Class 2 NIC.  From April 2015 HMRC will calculate the NIC due from your self-assessment tax return.

Deferment of National Insurance Contributions

If you currently defer NIC, you don’t need to re-apply to do so.  HMRC will be sending out letters in December to everyone who currently defers NIC to confirm this.  Any new applications to defer NIC will not be processed.  For more information on National Insurance for the Self Employed please go to my blog post here: Class 2 NIC.

Alterledger can help

For more information on filling in your tax return, contact Alterledger or visit the website alterledger.com to see if you can organise yourself better and cut your tax bill.

 

Musicians tax breaks

Will Scottish entertainers make more money with proposed musicians tax breaks?

One of the consequences of the Scottish Independence Referendum is a “Command Paper” to be produced by Lord Smith of Kelvin and the Scottish Devolution Commission.  Among the proposals being put to the commission is copying an idea from Ireland to give artists and musicians tax breaks.


Musicians tax breaks

Special treatment for artists

The Republic of Ireland has given artists a tax exemption since 1969 which means the profits from the sale of works do not attract income tax up to a maximum of €40,000, or £31,500.  Everyone agrees that the tax system should be simplified – except of course if it the complication benefits you.  Is this a valid sign of support for artists or will everyone want “special treatment”?

Alterledger can help

Why wait for the law to favour your industry?  Contact Alterledger or visit the website alterledger.com to see if you can organise yourself better and claim more expenses to cut your tax bill.

 

What are the differences between employees and contractors?

According to figures released by the Office for National Statistics last week, self-employment is at its highest level since records began almost 40 years ago.

There are currently 4.6 million people self-employed, with the proportion of the total workforce that are making a living for themselves sitting at 15%, compared to 13% in 2008 and less than 10% in 1975.

As highlighted by Everreach and the Daily Mail.

A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

Workers

steve@bicknells.net

We love Self Employment in UK…..

Business people group.

The UK has seen the fastest growth in self-employment in Western Europe over the past year, according to the Institute for Public Policy Research (IPPR).

The number of self-employed workers rose by 8%, faster than any other Western European economy, and outpaced by only a handful of countries in Southern and Eastern Europe.

The IPPR’s analysis shows that the UK – which had low levels of self-employment for many years – has caught up with the EU average. If current growth continues, it says, the UK will look more like Southern and Eastern European countries which tend to have much larger shares of self-employed workers.

According to Tax Research UK

Something like 80% of all the new jobs created since 2010 are, in fact, self-employments, and there are a number of things that very significantly differentiate self-employments  from jobs.

The first is security:  there is none.

The  second is durability:  vast numbers of new small businesses fail, which is one reason why I doubt the official statistics.  I am sure they record the supposed start-ups  correctly but seriously doubt if they have properly counted the  failures.

Then there is  the issue of pay. The evidence is  overwhelming  that in recent years earnings from self-employment have, on average, declined significantly.

A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

In summary, why is it attractive to use Self Employed Freelancers?

  1. Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
  2. Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
  3. Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
  4. Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
  5. 110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.

So do you think self employment is good for the UK?

steve@bicknells.net

What is your status – Self Employed or Employed?

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A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

If a worker should be an employee HMRC will seek to recover the employment taxes from the employer not the worker, so there are considerable risks for the employer if the status of its workers is wrongly assessed.

Some employers might decide to insist that sub-contractors must be limited companies, as companies can’t not be reclassified as employees.

The sub-contractor would then need to assess whether IR35 applies to their contract. If IR35 does apply then please read this blog on Deemed Payments

steve@bicknells.net

New Government Funding to help Women in Business

confident business

Last months ONS figures show more people are becoming self employed than ever before.

Budding female entrepreneurs are set to benefit from superfast broadband with a new £1m challenge fund, enabling them to work effectively, access new markets and grow their business online.

The fund will be part of the Government’s Superfast Broadband rollout and will help women take full advantage of all the opportunities superfast broadband can bring to business. There are 40 local broadband projects in England, already delivering the programme and they submitted bids to the £1m challenge fund in May 2014.

This forms part of help the Government is already providing to female entrepreneurs, which includes:

  • £1.6 million to support women’s enterprise in rural areas;
  • access to over 15,000 free business mentors; and
  • from next year, the introduction of Tax Free Childcare will mean that, for the first time, many self-employed parents will have access to support with childcare costs.

Are we doing enough to help women in business?

steve@bicknells.net

Limited Liability Partnerships

Cropped Leaves

Limited Liability Partnerships came under closer scrutiny in the Budget 2013.  The aim is to target LLPs which use the structure to hide the employment relationship of the partners and those with Corporate partners who divert business profits to the corporate partners in order to avoid tax.

Although the following measures come in to play from 6th April this year, the anti-avoidance measures make it effective from 5th December 2013.  This is to prevent partnerships changing their arrangements in order to avoid the new rules.

The two main areas of focus are salaried or fixed profit share partners which is referred to as disguised employment, and profit and loss sharing arrangements within mixed partnerships.

LLP partners with fixed profit share

HMRC believe that many members of an LLP should be taxed as employees, because they don’t see them is true partners.

A new test has been brought in which has three conditions.  Where the member tested meets all three conditions then he or she must be treated as an employed salaried member and be brought within the PAYE system with tax and class I NIC applied to any earnings,  which had previously been Taxed as profit share.

This also means that if a vehicle is provided for the members use by the partnership this will be taxed as a benefit in kind.  As such the member will have to pay tax and NIC and the LLP will have to pay Class 1a NIC on the benefit.

HMRC does actually accept that employment tax rules are imposed on the individual but that in fact the individual has no employment rights. This is because he is not actually an employee for employment law purposes.

The test is as follows. The provision is triggered when all conditions A to C are met:

Condition A: The Member is performing services for the LLP in his capacity as a member of the partnership and it’s reasonable to expect as a result of these arrangements that any amounts paid to him in respect of his services will be wholly or substantially wholly a disguised salary. In other words if his reward package is comparable to that received by an employee, either a fixed salary or a variable bonus based on performance rather than profit share.

Condition B: The Member doesn’t have significant influence over the affairs of the partnership.

Condition C: The Member’s capital contribution to the LLP is less than 25% of the total amount of his disguised salary which would be expected to be paid in the relevant tax year by the LLP in respect of the members performance of services as a member. Normally the relevant time would be the beginning of the new tax year.

These tests must be reviewed each tax year.

Corporate LLP Members

This applies to partnerships who have members which are not subject to UK income tax for example this might be a limited company. The problem here is that HMRC believes these structures are used to avoid tax on a very large scale.   Where for example an individual member introduces his Ltd company as a corporate member, and which then receives a profit share that would otherwise have been paid to the individual member.   If the Member then has the power to enjoy the fund which had been paid to his company then:

  • The individual member will be treated as a salaried member.
  • The amount paid to the company will be treated as employment income paid to the individual member.

There are anti-avoidance rules are in place to catch anyone trying to put measures in place to counteract these new rules.

fiona@grant-jonesaccountancy.com

http://www.grant-jonesaccountancy.com

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