We asked UK accountant Nicola Shoults for the 5 key things every carer needs to know about being self-employed:
- HMRC Registration
If you work for yourself in any capacity you must register as self-employed with HMRC. If you do not do this then you will not be able to pay the income tax that you owe on your earnings. The self-assessment results are your proof of income, you will need this if you ever need to prove how much you earn annually in the future. Most cases require more than one years’ worth of accounts to be provided. - Retain Expenses
Once you have registered as self-employed, you are all set to start with work!
Your self-assessment will need to be submitted on an annual basis. To do this you need to retain records of all of your income and expenditure throughout the year. If you are unsure how to complete your tax return it is advisable that you seek help from an accounting professional. - Self-Assessment Deadlines
Self-assessment is a term used to describe the act of informing HMRC about your earnings.
The information provided to HMRC must be complete and include all income you have received within that year. All receipts, invoices and other materials relating to income and expenditure for the year must be stored for your records, either in paper form or electronically. The easiest way to do this is to update your records regularly, rather than trying to gather this at the last minute in January.
The tax year runs from 6th April to 5th April. Your self-assessment must be submitted to HMRC by the 31st of January of the year following the tax end date.
You must register as self-employed by 5th of October, after the end of the tax year. For example, in the year ending 5th April 2016, you would need to register with HMRC no later than 5th October 2016.
If you chose to submit your documents online, the deadline for this would be on the 31st January, directly after the end of the tax year. If you submit documents by post the deadline, would be 31st October, proceeding the year end. If you are unsure seek advice from an accounting professional who can go through everything with you and file the self-assessment on your behalf. - National Insurance Contributions
There are two types of National Insurance (NI) contributions that will be payable, provided your income is over the relevant thresholds. If your income is below these levels, you can opt to pay NI voluntarily.
The thresholds for the year 2016/17 are:
Class 2: £2.80 per week where income exceeds £5,965 per annum
Class 4: 9% on profits between £8,060 and £43,000
2% on profits over £43,000
An example – if your annual income is £45,000 your annual NI contributions would be £4055.60. The workings for this are below.
Class 2 – £2.80*52 = £145.60
Class 4 – 43,000*9% = £3870
2,000*2% = £40
A self-employed caregiver is not required to pay Class 1 national insurance contributions. These contributions are deducted by employers.
Also it is important to note that you need to make 30 years’ worth of NI contributions to qualify for the full state pension. If you are unsure or require more information you can talk to an accounting professional or financial advisor. - Tax Bands
There are 4 tax bands in the UK. The thresholds can change so it is advisable to check with HMRC for any updates.
The thresholds for the year 2016/17 are:
Up to £11,000 per annum 0%
£11,001 – £43,000 per annum 20%
£43,001 – £150,000 per annum 40%
Over £150,000 per annum 45%
An example – if your annual income is £45,000 your annual tax bill would be £7,200. The workings for this are below.
Annual allowance of £11,000
The next £32,000 is taxed at 20% – £6,400
The final £2,000 is taxed at 40% – £800
Nicola Shoults is a qualified accountant and independent tax specialist, with over 10 years’ of experience working in various UK-based organizations.
The information contained in the above article is general in nature, does not take into account your personal situation and should not be relied upon in place of appropriate professional advice. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a tax accountant.