self employment

Self-employment: The challenges and how to overcome them

by Madaline Dunn

In the UK, there are over five million self-employed people. This figure has risen dramatically since the 1970s when only a small fraction of the workforce (8%) were self-employed. 

Of course, the trend towards self-employment stems from increased flexibility, greater creative freedom and the ability to be one’s “own boss”. However, that’s not to say that there aren’t challenges that come with the decision to break away from “traditional employment”.

At The Salary Calculator, we’ll guide you through the challenges and potential pitfalls of self-employment and how to overcome them.

This article will explain:

  • The additional responsibilities that come with self-employment
  • The differences in maternity pay and parental rights 
  • How to manage finances 
  • The importance of good time management

What are the additional responsibilities of self-employment?

While self-employment can provide workers with a lot more freedom, there are additional responsibilities that individuals must fulfil when they go solo.

One particularly important responsibility is registering as self-employed with HMRC. Following this, self-employed professionals (whether sole trader, limited company or partnership) must complete a yearly Self-Assessment tax return and pay National Insurance (NI) contributions and income tax on profits earned. Additionally, self-employed individuals must still pay income tax and NI contributions even if they make a loss.  For help with calculating how much you owe HMRC, head over here.

Another responsibility for those who are self-employed is setting up a pension pot in preparation for your golden years. While employers must provide eligible employees with a workplace pension scheme and make contributions, self-employed people must choose their own pension plan. That said, only 31% of self-employed individuals are currently saving into a pension!

Most self-employed people opt for personal pensions, and there are few different types. These are:

  • Ordinary personal pensions
  • Stakeholder pensions
  • Self-invested personal pensions 

Some self-employed people are even eligible to use NEST (National Employment Savings Trust).

Of course, if a self-employed professional makes at least 30 years of NI contributions, they are entitled to a state pension. However, this is only £179.60 per week.

Setting up business insurance is also another factor that self-employed individuals should consider. Professional indemnity insurance and public liability insurance are the most common types chosen by self-employed people.

What are the differences between maternity pay and parental rights?

Maternity pay and parental rights work slightly differently for self-employed people. Unfortunately, when self-employed, you aren’t eligible for maternity leave or typical maternity pay.

That said, instead, you may be eligible for Maternity Allowance (MA). Eligibility depends on whether you can fulfil the following criteria in the 66 weeks before your baby’s due date:

  • You have been self-employed for at least 26 weeks
  • You have earned (at least £30 a week in at least 13 weeks – not necessarily in succession

The total amount that a self-employed mother can earn is £151.20 per week, which is reduced to £27 a week for 39 weeks if there are insufficient Class 2 NI contributions.

Unfortunately, there’s no equivalent for fathers and partners who want to take time off.

Managing finances 

Unfortunately, when it comes to self-employment, there are financial challenges that you will face that other workers do not have to worry about. When you’re self-employed, you are in charge of your finances, so this means you’re responsible for:

  • Creating a business budget
  • Establishing a business bank account
  • Reviewing your finances
  • Consulting an accountant (if you feel the need to do so)

It’s also essential to check what you can claim in allowable expenses because this can save you a lot of money. Equally, due to self-employment being a bit more financially precarious than traditional employment, it’s wise to have some contingency money saved up.

By making sure you tick all of the above boxes, you’ll have less chance of facing financial struggles and avoid a lot of potential stress! 

It’s also important to note that it’s not the end of the world if you do come into financial difficulties. For example, if a client or customer fails to pay for the services you’ve delivered, there are steps in place for you to follow.

With late payments, you should immediately send a collection request. If this goes unheard, it’s a good idea to send a “statement of account” to the accounting department. This should include:

  • The invoice date and number
  • The amount owed
  • The work completed for which the owed

Often, late payments are just a mistake, but if no payment arrives within 30 days of the due date, the Late Payment of Commercial Debts Act has your back. This piece of legislation outlines that self-employed workers can claim interest and debt recovery costs set at the Bank of England base rate, plus 8%.

The importance of good time management 

In order to ensure business success, self-employed workers must ensure that they have top-notch time management skills. To achieve this, there are a few helpful hints and tips you should follow.

Schedule your time well. Whether that’s selecting a time to deal with admin, plan contingency periods, or even free time, carefully planning your time will help you avoid stress and multitasking. 

Additionally, while it’s important to have a business email and a personal email, it’s also crucial to have set times to review your emails. Time-tracking can be helpful here, and there are plenty of apps out there that can help you with this.

Another way of achieving good time management is through outsourcing. Delegating tasks that you don’t have the time to complete can boost productivity and give you time to focus on tasks you have prioritised.

 

Tags: , , , , ,

Monday, June 28th, 2021 Jobs No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

First 5 Steps to Self Employment

by Admin

[Sponsored Post]

For many people, becoming their own boss is the dream. They get to work in an industry they love, choosing their own clients and – better yet – their own hours. The only problem is that becoming self-employed isn’t that straightforward. At least, not on the surface.

After all, having to evaluate your income and manage your own tax affairs can be daunting. That’s why we’ve asked Mike Parkes from GoSimpleTax to help set your mind at ease, by providing his first five steps to self-employment.

  1. Register as self-employed

First things first, you need to let HMRC know that you’ll be paying your own Income Tax and National Insurance contributions (NICs) moving forward. You’ll need to do this as soon as possible – no later than the 5th October after the end of the tax year in which you first became self-employed. So, if you become self-employed between 6th April 2021 and 5th April 2022, you have until 5th October 2022. It’s a relatively simple process though. All you need to do is register on the GOV.UK website, or fill in an on-screen form to then post to HMRC.

  1. Get to grips with your tax bill

Next, it’s time to understand what tax you’ll be responsible for paying. First is your Income Tax, which is determined by your taxable income (that is, your earnings minus any allowable expenses and deductions). HMRC takes this information from your Self Assessment tax return and calculates your tax bill accordingly.

The amount of National Insurance you pay also depends on your taxable profit (income less expenses). Instead of the Class 1 NICs that employed people make, you’ll pay Class 2 (unless you earn less than £6,515 a year) and 4 (if you earn profits over £9,569 a year). See the effects of self-employed income tax and NICs at Employed and Self Employed.

  1. Choose the correct insurance cover

This largely depends on which industry you’re in, but there are some general policies that all sole traders should consider. For example, if you employ another person, even if it is just part-time support to help complete projects, you are legally obliged to take out employers’ liability insurance. There is a significant fine for sole traders caught failing to have this.

You should also consider taking out public liability insurance. This protects your business should a client, customer or member of the public decide to take legal action. In the event that they suffer an injury at your premises, or you suffer an injury at their premises, it would also provide cover for damage to property.

Finally, you should consider insuring yourself for professional indemnity. This is where you protect yourself from a client lawsuit levelled at you on account of them being unhappy with the work you have done or the support you’ve provided.

We would always advise that you seek specialist advice from a suitably qualified insurance broker to discuss your requirements.

  1. Identify any relevant tax relief in your line of work

Now you’re square with HMRC, and you’ve covered yourself legally, it’s time to enjoy the benefits of self-employment. All sole traders are eligible to claim relevant expenses to reduce their profits – and the lower the profits, the lower your tax bill will be.

After you’ve incurred the expenses, and inputted the total amount on the relevant tax return, just be sure to store the receipts somewhere secure should HMRC request them. Software like GoSimpleTax makes this easy, by allowing you to take a picture of receipts and save them together with invoices and bank statements in the cloud.

  1. Record income and expenses for your first tax return

A large number of sole traders log their income and expenditure towards the end of the tax year, causing unnecessary stress and a much longer tax return submission process. However, with real-time record-keeping, you can input this information throughout the year. This enables you to forecast your tax bill and better manage your cash flow. Again, with Self Assessment software, this takes no time at all.

In order to be successful as a sole trader, you need to be maximising your take-home pay and steering clear of HMRC penalties. By following the above steps, you achieve both. So, are you ready to finally become your own boss?

About GoSimpleTax

Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.

Tags: , , , , ,

Friday, May 14th, 2021 Income Tax, National Insurance No Comments

Who needs a UTR number anyway?

by Admin

** 25/01/21 HMRC updated their guidance to state that they would not be issuing fines for late self-assessment tax return submissions until 28th February 2021. However, the deadline of 31st January remains for payments and any late payments will incur interest at 2.6%.

[Sponsored post]

If you are a self-employed sole trader, partnership or limited company in the UK a Unique Taxpayer Reference (UTR) number is required. The number is unique to the individual or organisation and will never change.

You will also need a UTR if you have other forms of income or expenses that require you to file a Self-Assessment tax return.

Should you not yet have a UTR you will be unable to submit your self-assessment tax return and could run the risk of upsetting HMRC. Penalties are introduced by HMRC for late filing**.

So, to help reiterate the importance of UTR numbers and how to correctly acquire your own, we’ve asked Mike Parkes from GoSimpleTax to shed some light on their role in tax return submissions.

What is a UTR?

A UTR helps HMRC identify and process tax returns against the correct taxpayer’s records.

If you have income outside of PAYE or own a business and don’t act compliantly when it comes to your Self-Assessment tax return, you could face criminal prosecution.

Who uses them? 

Any individual with self-employed income or income from rental property probably forms the biggest group that will need a UTR.

These individuals will need to perform a Self-Assessment tax return. For other taxpayers, it may also be relevant when registering for the Construction Industry Scheme or working with an accountant.

How can I get one?

As you won’t receive a UTR number unless you’re registered as either self-employed or a new business, you’ll need to do so on HMRC’s website. Alternatively, you can call them on 0300 200 3310. There is no cost to doing either.

Be careful if you have already started trading. HMRC expects you to register within at least three months of the end of your first month in business. They will consider strict penalties if you fail to do so.

To avoid these fines, register as soon as you can with all the below information to hand:

  • Full name
  • Date of birth
  • Email address
  • Home address
  • Phone number
  • National Insurance number
  • The date you started self-employment

Double-check that you have fully completed the process if you’re still waiting on your UTR following registration.

What if I’m already registered?

You should already have a UTR code somewhere. If you’ve misplaced it, start by checking any correspondence that you may have received from HMRC. All previous tax returns will reference it, along with any notices you may have had to file a return, payment reminders or statements of account.

In addition, your HMRC online account will also display the code, provided you can access it. If none of these options prove fruitful, contact the Self-Assessment helpline.

About GoSimpleTax   

​GoSimpleTax software submits directly to HMRC and is the solution for freelancers and the self-employed alike to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Get started today, it is free to try – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

Tags: , , , , ,

Monday, November 16th, 2020 Income Tax, Jobs, National Insurance No Comments

The Paper Tax Self-Assessment Tax Return – What you need to know.

by Admin

[Sponsored post]

The paper return deadline is this month, 31st October, therefore we thought it would be useful to invite Mike Parkes from GoSimpleTax to explain how best to prepare for the Self-Assessment tax return submission and file with confidence.

New comers to submitting Self-Assessment tax returns, should know it pays to know that there are three ways of filing. Firstly, you can submit via the HMRC site and receive instant acknowledgement post-submission. You can also use commercial software to do this for you. Or, you can send a paper tax return to HMRC in the post.

Whichever method you choose, it’s important to understand your exact responsibility. For those who are self-employed sole traders or Landlords letting out UK property, paper submissions can be complicated as they involve additional forms and documentation.

1. Be conscious of the deadline

Should you choose to file a paper tax return, don’t forget to file before the 31st October deadline. We would recommend sending your paper submission prior to the October deadline, either through recorded delivery or with some proof of posting in order to prove your compliancy.

If you miss the deadline for submitting your paper return, don’t be tempted to file it late – you have until 31st January to complete one online. Just don’t submit both. You will be charged penalties from the 1st February for any late submissions.

2. Organise supplementary pages

Remember, it isn’t enough to submit the main SA100 tax return. You need to bundle it together with the rest of your documentation that references your property or self-employment income.

For any income as a landlord, all that’s required is to file an additional form (SA105) and submit it alongside your regular Self-Assessment tax return.

However, with self-employment, the additional sections required of you could be either the SA103S or the SA103F. The difference between the two is that the former is for those who had an annual turnover below the VAT threshold for the tax year (£85,000 as of 2019/20), and the latter is for those who earn above the VAT threshold.

3. Be open to online and prepare for Making Tax Digital for Income Tax

While you may have historically always submitted your tax return by paper, the vast majority of tax returns are now submitted online. Improvements in technology and the extra three months to file are the main incentives to submit an online tax return.

Having an online account with HMRC allows you to not only extend your filing deadline but also check your details at any time to see how much tax is due and act accordingly.

If you’re happy to tweak the way in which you keep your records and adopt digital record-keeping, this will help minimise admin further, as well as enable you to submit your tax returns and automatically calculate your tax.

Going forward as of April 2023 you will have to file your self-assessment digitally to HMRC providing updates every quarter via your digital platform.

Preparation is key, adopt the right approach now it could save both time and money, make the move to digital ahead of the deadline for MTD for Income Tax.

About GoSimpleTax

GoSimpleTax software submits directly to HMRC and is the solution for self-employed sole traders and anyone with income outside of PAYE to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Trial the software today for free – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

Tags: , , ,

Friday, October 16th, 2020 Income Tax No Comments

Self-Employed Sole Traders in the new tax year – where do you start?

by Admin

[Sponsored Post]

The new tax year started on the 6th April – that we do know for sure.

At times it felt like everything else changed and at a very quick pace. Our world slowed down – working from home where possible, home schooling our children the #StayHomeSaveLives were on windows with rainbows.

People settled into ways of working from home with daily routines including video calls to keep connected with fellow employees, following pop quizzes on the radio or simply taking time to reflect. Kids following PE lessons, craft tutorials and Disney princesses via online platforms while parents worked.

As this way of life continues for the foreseeable how can you be more productive?

One main cause for concern is money, knowing your financial stance helps you plan for the future. By getting ready to calculate your 2019-20 tax return – you will have your income and tax liability ready.

Digital copies of receipts and paperwork can be saved allowing for a clear out of the home office.

Whilst you do not have to submit right now, being safe in the knowledge of your outgoings for tax means you can then focus on sales and plan for the future.

The government stepped up and offered financial support

As the pandemic picked up pace and businesses were restricted by the Government the self-employed sat waiting and hoping they would be thrown a life-line. Chancellor Rishi Sunak gave them the Self-Employment Income Support Scheme.

The scheme is open to self-employed individuals or a member of a partnership who:

  • Have submitted their Income Tax Self-Assessment tax return for the tax year 2018-19.
  • Traded in the year 2019-20
  • Are trading when they apply, or would be except for COVID-19
  • They intend to continue to trade in the tax year 2020-21
  • They have lost trading/partnership trading profits due to COVID-19

For a further in-depth review of the scheme please follow the link above or visit www.gov.uk

Please note you had until 23rd April 2020 to file your 2018-19 self-assessment tax return to be eligible for this scheme.

A further helping hand was offered for anyone who uses Payments on Account, they will have their normal payment due on 31st July deferred –  this payment won’t be due until 31st January 2021.

Another deferral was that of the VAT payments due before 30th June 2020, these will now not need to be made until 31st March 2021. However you will be required to file your VAT return.

There were earlier announcements made by the Chancellor in March 2020 with an emergency £330bn financial package to bolster the UK economy. These included a business rates holiday and for struggling firms, loans.

There were postponements too for the controversial tax reforms to off-payroll working rules, more commonly known as IR35 – these have been postponed until April 2021 to help ease some strain from the pandemic and the effect it is having on businesses and individuals.

In 2019, it was announced that the Personal Allowance would be increasing from £11,850 to £12,500. Thanks to the increase, the tax brackets in the UK were also to be pushed back. Specifically, the basic rate limit was increased to £37,500 and the higher rate threshold was set at £50,000.

In April 2020 the Capital Gains Tax allowance increased to £12,300. Anything above the allowance, though, will be taxed at 18% for basic-rate taxpayers and 28% for additional-rate taxpayers. The Capital Gains Tax Allowance is the amount you can make from the increased value of your possessions tax-free.

GoSimpleTax bring you their award winning software, which factors in all the latest updates.

With GoSimpleTax software, filing has never been easier as it does all the calculations for you and thanks to features that allow you to take a picture of expenditure and upload it to your records, as well as log all forms of income.

With the documentation you need in one place and learning resources to help minimise your tax liability further, all that’s left for you to do is press submit.

Take their free trial today, no credit card required.

Tags: , , , , , , , , , ,

Tuesday, April 21st, 2020 Income Tax, Jobs, National Insurance No Comments

Sponsored Links

Close X

This website uses cookies - for more information, please click here.