Self Employed Archives

0 ‘EVEN AS AN ACCOUNTANT, I CANNOT HELP’

Not the sort of thing you will normally hear from me but exactly what I told Classical Music magazine just before I packed away my abacus and Excel spreadsheets for the weekend.

I was discussing the latest chaos at HMRC HQ with Florence Lockheart (the editor of this excellent publication) with regard to the pickle that overseas workers are finding themselves in
when attempting to register as self-employed.

You can read the article HERE – registration is FREE so don’t worry about that.

If you want the gist and don’t fancy reading my chat with Flo (although you really should) it goes a little something like this…

Quite a few months ago, HMRC stopped using a system called “Verify” in order to deal with the verification of people who needed to be registered for Self-assessment and self-employment.

“Why?” you may well ask but ours is not to reason why, ours is but to do and…well if you are on hold long enough (any many sadly are!)…

They then made a load more changes and updates but as I was helping a client through this it came to the verification bit and it was nigh on impossible to make progress, largely because the
ID required was UK-based.

Guess what?

If you ARE NOT UK-based you are unlikely to have such prized proofs! Payslips can help here BUT there is another layer of admin to break through after you have navigated this level where they ask once again for two items out of a UK passport, UK photo card driver’s license, or credit reference.

Spoiler alert… an overseas worker living and working here will struggle.

I certainly did and I have all manner of shortcuts and agent clearance so imagine if English is not your first language or you simply don’t have the time or iron-will to sit on the phone to HMRC
for hours on end when you should be practicing or performing!

We’ve had 3 months of a closed helpline and queues can be well in excess of an hour when people do get through. Come on HMRC, think about the customer experience, wherever they are from!

0 Martin Lewis and Louise in pensions duet

Yes, after months of campaigning, negotiations, contract wrangling and carrier pigeon-powered correspondence it can be confirmed that the nation’s money mavericks are singing from the same hymn sheet.

Not really.

There were no pigeons and I offer zero financial advice.

However, Martin and I do both agree on this and it’s a belter of a tune.

Remember the Great Pensions Panic of Spring 2023?

Folk scrambling madly to check what they’ve paid into their State Pensions then flocking to the HMRC National Insurance portal thingy to top them up before they pulled up the drawbridge?

No?

OK, you are forgiven but in a nutshell, our Martin (and Louise) were urging folk to go back and check your Ni contributions back to 2006. The reason being that if there are “gaps” you can go and fill them by topping them up.

Yes, it will cost you money but the end result would be a HUGE uplift in your State Pension when the time comes. We’re talking thousands of pounds for hundreds “invested” here.

Well….predictably, the HMRC website pretty much fell over so the deadline has now been extended to April 2025!

Yay!

So you’ve got plenty of time to try and get through to the Future Pensions unit and sort out what you need to pay if you want to do any catch up years.

However, what you must remember is whilst they will tell you how much it will cost, you then need to decide whether you want to pay it or not.

I can’t really advise on that as I’m not a financial advisor.

If you do decide to pay, you must get an 18 digit reference number from the NI team or the Future Pensions team in order to make the payment. Whatever you do, do not come off the phone if you decide to pay until you have that number. Otherwise, you’ll sit in the queue again!

0 The one where the words “interest” and “tax” meet in the same headline

It might sound like a contradiction in terms but I beg you pay heed to this seeming impossibility. DON’T forget to make your July Payment on Account if required!!!

Bringing it back to the headline, is it because “tax” is “interesting”?

Spoiler alert…no.

Is it because “interest” is “taxing”?

Well, yes.

Purely because if you read the following and do NOTHING about it before it is too late you might end up paying a HUGE amount of interest and even some fines to HMRC.

So what’s the problem?

It comes down to Self Assessment and Payments on Account.

Remember them?

They are the ones that are estimated by the good folk at HMRC after they peer into their crystal ball and miraculously conclude that you will earn the same amount of money this year.

They then “helpfully” ask you to pay half early doors.

Now it seems a pain to many people but it does make IF you are organised with your finances.

The problem is the whacking great inflation problem right now – you might have noticed it!

That means that if you are late….the impact of the interest you pay is far bigger than usual.

Like 7% and upwards bigger – never mind the fines.

So what do you do?

Check your online account and see how much you have to pay by the 31st of July. I recommend you set up the payment for a few days BEFOREHAND just in case something crumbles. Or…you could look at doing your tax return before the 26th of July. That will give HMRC time to reevaluate how much the July 2023 payment should be. Now…it will never go up, but it could go
down if your income has changed between the two years.

0 Your child and earnings – part 2 on Etsy

This is a little bit different to the child actors earning money.

Etsy is like a big online craft fair where people from all around the world can buy and sell unique, often handmade or vintage items. It’s like an online marketplace that’s special because it focuses on unique, creative goods, much like the things you might find at a local art fair or antique shop.

Just imagine walking into a bustling craft fair, where artisans showcase their beautiful, handmade crafts, jewellery, clothing, and other special, often one-of-a-kind items. Now, imagine being able to visit this craft fair from the comfort of your own home, any time you want, day or night.

What we have found is that children are creating work and then selling it, and as it is crafting, the most appropriate platform is Etsy. So the income belongs to the child right?

Wrong!

Etsy won’t let anyone under the age of 18 set up an account, so the parent has to set up the account under their name as the adult. But the income still belongs to the child right?

NOPE

HMRC treats it as the adults’ income as the account is in the name of the adult, so the adult has to declare it on their tax return.

This is not a problem if the adult does not have any self-employment as you can earn up to £1000 per tax year without having to tell HMRC. But if the adult is self-employed, no matter what the earnings on Etsy are, it needs to be on that adult’s tax return, and that adult pays tax on it, and oh my that could be at 40% and as it is treated as the adults’ earnings, maybe VAT as well.

So what starts to be a child’s hobby can turn into an adult’s tax nightmare. We don’t want to discourage creativity or entrepreneurship, but now you know this, if there are two adults attached to the child, put the Etsy account in the lower-income adults’ name.

The hard part is how to tell the child that they may loose some of their income to the tax man. Oh well, never too early to start that element of disappointment in life!

0 The dreaded student loan

Student loans are how most people in the UK can pay for their tuition and living costs whilst studying at University – if of course, the degree course is eligible for a student loan.

But the reality of the loan kicks in once you’ve finished your degree and embarked on your chosen career, and working out how to repay that loan can be a bit blur.

To put your mind at rest, a student loan does not affect your credit rating – the only good news in this piece.

Which plan are you on? There are 4 to choose from. Eyes down:

Plan 1:

Anyone who started an undergraduate course before September 2012 in England or Wales.

Plan 2:

For all students who started a course after 1998 in Scotland or Northern Ireland, and after 2012 in England & Wales.

Plan 4:

Is a Scottish student loan and for those that graduated in 2020/2021 onwards, and to complicate matters further, the Scottish Government converted those still on a Scottish plan 1 to plan 4.

You think I have missed plan 3 – well officially there isn’t one named plan 3, but there is a Postgraduate Loans and Advanced Learner Loan repayments, which have different rules.

Told you it is a bit blurr.

The plan you’re on will dictate your repayment terms, including the threshold over which you start repaying your loan and the interest rate. The thresholds mainly change each year, but so far not the percentage. Plan 1, 2, 4 are 9%, Post Grad (PGL) is 6%.

The student loan repayments are income-contingent, meaning they are based on your income from all sources. Repayments start when your income is over the threshold for your loan type.

These repayments are typically deducted automatically from your salary if you’re an employee. If you’re self-employed, you’ll make repayments as part of your tax return. That dreaded bill just keeps going up in January.

You can opt to pay off your loan faster especially if interest rates are higher than the repayment interest required by making voluntary payments if you have money to spare and not going to cause you hardship as you won’t get it back if you need this.

Employers will still take the required amount each month from PAYE, but if you only have self-employment, you don’t have a way of entering this in your tax return.

You need to create a false employment page which is blank as the self-assessment system does not take into account voluntary payments by the self-employed. You will only put down payments made in the tax year that the return covers, not voluntary payments in the next tax year. The exception to this is if you fully paid off the loan in the current tax year, but the tax system requires you to make a payment (will take months to get it back), then tick the box that say no student loan and attached the confirmation letter that you are fully paid up.

In the UK, student loans are eventually written off if they haven’t been repaid. The write-off period depends on the loan plan and when you took out the loan, but for plan 2, 4 and Post Grad, it is 30 years after you become eligible to repay, plan 1 taken out after 2006/2007 25 years and when you turn 65 before that.

Extra fun fact 1: There is a student loan plan 5 coming out for people starting a degree course after 1st August 2023 – undergrad & post grad – watch this space!

It’s worth considering this fact when deciding whether to make extra payments on your loan. For some people, especially those on a lower income, it might make more financial sense to focus on other financial goals.

If you move abroad, you still have to repay the loan, but it will be directly with the Student Loan Company (SLC) and not through the UK tax system. You need to notify the SLC within 3 months of moving overseas. They may require evidence of your income overseas (Overseas Income Assessment) and request a direct debit be taken for the repayments. A little bit harder if you are self-employed overseas and have no fixed income.

The only other times the loan MAY get written off is if the person dies, or if a person cannot work due to illness or disability. only those on PIP, DLA, Industrial Injury Benefit and Severe disablement allowance can claim.

0 National Insurance 2023/2024 for Directors

The start of the new tax year (yes I know I am late) usually signifies that a director of their own company can have a small pay increase but not really for 2023/2024.

Income tax will be charged on the salary at £12570, so if you are minimising the tax to be paid, you would want to set the salary at that.

Class 1 National Insurace:

Class 1 National Insurance for a director is now also set at a threshold of £12570 and it is normally based on a cumulative basis so the director will only start to pay that when salary for the year goes over that amount.

But hey – that is OK because if we are only paying £12570 due to the income tax threshold, we are safe and won’t pay employees national insurance.

Result!

But be aware…

Now, here is the kicker – the employers’ national insurance threshold did not change, so your employer (well your own company) will start to pay 13.8% national insurance if your monthly salary goes over £758.33. It goes towards nothing, just into the Government coffers, so if you want to keep spending down, just pay yourselves the £758 a month and then dividends once a quarter.

Complex rules:

The landscape for Directors’ salaries and National Insurance in the UK is complex and can change from year to year. As a director, staying updated with these changes is crucial for both personal and business financial health.

Please note that this blog post is intended as a general guide and not specific financial advice. Always consult with a qualified financial advisor for advice tailored to your circumstances.

Understanding UK Mileage Rate and Car Costs for the Self-Employed

When you’re self-employed, every penny counts, and effectively managing your costs is key to maintaining a profitable business. A number of people talk to me about the use of their car for self-employed work especially if they are on tour.

This is an article in our knowledge base that goes through it all, the first bit is if you are employed and then it goes on to self-employment >> https://bit.ly/439aMZ6

The key things to point out are:

1. The mileage allowance is to cover all the costs of the car for the year not just the fuel. So it covers insurance, DVLA fee, maintenance & repairs, tyres, car wash etc. Not sure the last time I washed my car.

2. Parking costs are not part of the car cost as the only reason you are parking the car (or congestion charge) is because you are driving somewhere for your self-employed business.

3. You must keep a mileage log of self-employed mileage travelled you cannot just pluck a figure out of the air saying “Oh I did about 1000 miles” or “95% of the mileage I did in the year was for my self-employment and I think I did 8000 miles”. Keep records whether it is an app like Tripcatcher or Mile IQ, or an exercise book of trips that you then put into an Excel spreadsheet as part of your electronic bookkeeping.

4. The purchase costs of the car is included in the mileage rate. You cannot claim capital allowances on the car or the lease/PCP payments.

5. One main thing to remember is that you cannot swap the method you use each tax year or within that year unless there is a significant change in circumstances – which will mainly be a change in car.

6. If you do decide to use the actual cost method of costs for the car, this method involves keeping track of and deducting all costs associated with the business use of the vehicle. You need to keep records of all costs related to your vehicle. These costs include but are not limited to fuel, repairs, servicing, MOT, insurance, vehicle tax, and cleaning.

Then keep a detailed log of all business-related journeys, noting the mileage for each trip and also get hold of the actual mileage the car has been driven in total in the tax year irrespective of who drives the miles under your “ownership”.

A quick example…

So if you drove 1500 self-employed miles out of a total of 3690 miles, you can claim 40.65% of the running costs against your self-employed income. If you use the actual cost method and you own the vehicle, you can claim capital allowances on the cost of the vehicle applying the business proportion calculated above, and apply that to the allowable writing down allowance for the vehicle’s CO2 emission.

It can get complicated…

All this gets very muddled if you use cash accounting for the basis of your self-employed accounts, and then use the actual cost method for the car cost. Will save that for another time.

While the Actual Cost method can be more time-consuming than the simpler mileage rate, it can sometimes result in higher deductions, especially for vehicles with high running costs or those used primarily for business purposes.

Why you want one of these cars gee – it’s hard enough earning at the moment as a musician or actor – why give it to the car garage.

Why hire a specialist accountant to complete your yearly tax return?

The problem of managing taxes is crucial to your personal financial success from budgeting, accounting and the dreaded tax return whether it is a self-assessment tax return for the self-employed or annual accounts & tax return for limited companies. A personal tax accountant can make the whole process much more manageable with up-to-date knowledge of the changing tax world and how it may affect you, and if everything is submitted to the accountant online, escape late penalties etc.

A proactive approach to the tax return process can help avoid surprises as accountants like to get tax returns done early in the filing period (always check spam as that is where tax-related emails tend to end up), and you get to know your liabilities early enough to make arrangements in how to pay.

But there are plenty of other reasons to use an accountant.

1. Time-saving: Unless you are utilising apps regularly, you often spend hours or days trying to get your tax data up-to-date for the year, and many people sometimes leave it too late and are then tied up with a mahoosive amount of work. The use of an app and installation of good habits can be put into play if you connect to your accountant, as they can nudge you in the right direction. As a self-employed person, time is one of your most valuable resources. The complexities of the UK tax system can make tax return filing a time-consuming process, which takes you away from your core business tasks. It is also possible of course you hand all the day-to-day stuff to the accountant so saving you time. Of course, that takes money so it is a time v money situation.

2. Expert in tax law: General tax law can be complicated enough, but all the changes that take place mean you have to be in the know if you go it alone. Professionally qualified accountants have to undertake professional development and update courses each year in order to keep their certification and to operate as a qualified accountant. This way, they can offer you the correct advice at the time to minimise your tax liability. But beware, if you have been doing your tax return incorrectly in the past and you get an accountant that knows the rules and corrects you going forward, it can cost you more than just their fee. Equally though, you may not have been claiming for things you could claim for, so they will then save you money.

3. Peace of mind: That’s nice (sorry – just channelling Mrs Brown). Knowing that a professional is handling your taxes can provide considerable peace of mind. You can rest assured knowing your tax affairs are in order if submitted to the accountant in plenty of time, you’re compliant with the latest laws and regulations, and you’re optimising your tax position. An accountant can ensure you understand and meet your self-assessment obligations, which can be particularly useful if you’re new to being self-employed.

4. Filing on time with accuracy: A familiar theme here – if you get your data to the accountant when they request it, it will ensure that there is plenty of time to work through the data carefully and give time to file so you can save up for it. There is no point in handing your data over in December/January and expecting everything to be perfect and filled so you don’t get late penalties. If you complete a checklist provided by the accountant, then it is highly possible that everything will be available at the same time and not have to waste energy, time and money having to keep re-starting the work.

5. Awareness of VAT: Although you are responsible for accurate accounting records, you need to keep an eye on your fee income/turnover as to whether you should be registered for VAT (UK fee income/turnover over £85K in a rolling 12-month period). Handing everything over to an accountant near the end of the filing period may show that you should have been VAT registered months ago and that can unearth a whole host of pain. I you are running close to that level, it may be worthwhile engaging an accountant to keep an eye on everything and give you advance warning of the situation.

6. Possible financial advice: I don’t really want to put this one on the list as most accountants are not qualified to offer actual financial advice in terms of pensions, investments, mortgages etc, but they can make you aware of using things like pension contributions and the effect on your tax return, and general money management advice for self-employment and director owned companies.

7. Support with HMRC investigations: Heaven forbid this happens, but in the event of an investigation by HMRC, having an accountant can be invaluable as they can help you navigate the process and prepare the necessary documents required. If you are a member of one of the performance unions, your membership may pay for accountants fees for this and representation.

So that takes into account why you would hire an accountant, but surely all accountants are the same?

So why hire a specialist in the music, arts and entertainment industry?

It is simple in that a specialist accountant will know the ins and outs and the peculiarities that may exist eg subsistence, clothing, grooming etc. Two key areas that a specialist can help you with are capital allowances, especially on instruments and overseas tax deductions.

As a self-employed individual or a director of your own limited company, having an expert accountant in your corner can save you time, money, and stress, making it a smart business investment.

Don't Call HMRC, Performance Accountancy

Don’t even think about calling HMRC!!!

HMRC clearly need a break and that’s what came into place on the 12th June. HMRC have closed the main self-assessment helpline telephone number (0300 200 3310) until the 4th September.

People trying to call that number will just be directed to online services where the taxpayer is supposed to be able to service themselves through the online tax account or general help guidance. I am quite sure that people would love to be able to do this and not be in a queue to speak to a person for 45min to up to 2 hours I have heard.

Of course, HMRC says it is to put resources on other lines and to open the post, but hey – look at the weather we are having at the moment. Of course, I could just be cynical – you know me !!!

The main useful number is the payment services line (especially as the July payment on account is due in 5-6 weeks) is 0300 200 3835 if you cannot pay in time or 0300 200 3822 if you need a time to pay agreement if the deadline has passed.

For the National Insurance Help Line (are you still trying to pay prior years’ NI), then the number is 0300 200 3500 – if you are back paying, then make sure you get a reference number to pay against.

For tax credits then the number is 0345 300 3900, but I think the webpage may have this wrong as most HMRC numbers start 0300 200

We have several helpful guides on our knowledge base including the use of the online tax account, so feel free to use it – https://bit.ly/3xX6upO

Bra-vo for effort but don’t try this expenses trick folks

Ever wondered what you can and CANNOT get away with claiming on expenses?

As you might expect, I’ve seen THE LOT!

Sometimes, more than one might care to see if I’m quite honest!

There seems to be a “grey area” for some folk, where the personal and the business world collides and I understand that.

The key thing to remember is this…It has to be for the BUSINESS and NO personal benefit.

So imagine the red faces at HMRC when an unnamed “OnlyFans” content creator managed to convince the HMRC that a breast enhancement was a legitimate business expense. This was “revealed” by the Mail on Sunday last week and you can imagine the combination of indignation and dare I say “titillation” they got from that story.

Considering these treatments on the NHS are on average £6000 (according to my outsourced research on the matter), this could all get rather expensive for the taxpayer.

There’s previous for this too, one former BBC presenter managed to wangle a claim for dental treatment as he was switching from radio to TV work.

These examples have meant that people have tried to claim facelifts, breast implants, Botox injections, teeth-whitening and similar. Most accountants and tax advisors know that these will get kicked out of tax return reviews so won’t enter them. If people insist it gets entered, then it needs to be declared in the white space on the return. Then wait with fingers crossed.

It is the same with any medical treatment, it falls under the dual benefit rules and cannot be claimed. It seems that this may all be set to come to halt pretty soon and HMRC even noted that; “It’s very unlikely that a non-health-related operation would be an allowable expense.”

The golden rule is that the expense has to be wholly and exclusively for the self-employed business.

Unlikely, but still tempting? Please be careful and if in doubt, ask a professional…like me!

Remember…Business, not Personal.

Now, if you want to ensure you don’t fall foul of the law on expenses, why not grab your free copy of my guide to expenses.

You can find it HERE. After all, nobody wants to go “bust” over this do they?!

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