You are probably self-employed if you:
- run your own business and take responsibility for its success or failure
- have several customers at the same time
- can decide how, when and where you do your work
- are free to hire other people to do the work for you or help you at your own expense
- provide the main items of equipment to do your work
If you are self-employed
You are responsible for your own tax and National Insurance contributions. This means telling HM Revenue & Customs (HMRC) about your income by filling in a Self Assessment tax return.
You should register for tax and National Insurance with HMRC as soon as you start working for yourself. If you delay registering, you may have to pay penalties.
How is the tax collected?
Tax returns covering income for the year ending 5 April 2012 have to be submitted to HM Revenue & Customs by the ‘filing date’ which is 31 October 2012 for paper returns and 31 January 2013 for online returns. The return will include a self assessment of your liability to income tax and capital gains tax.
There are automatic penalties for late filing of tax returns.
Payment of tax
Payments on account of income tax and Class 4 national insurance contributions (NICs) will be due on 31 January 2012 and 31 July 2012. These interim payments will be based on one half of the total liability (less any tax deducted at source) for 2010-11. You will have the right to reduce payments on account if you believe the income tax for 2011-12 will be lower.
The balance of income tax for 2011-12 is due on 31 January 2013 (along with the first payment on account for 2012-13 and any capital gains tax for 2011-12).
Interest and surcharges will be levied for late payment.
What about National Insurance?
The self-employed are subject to a two-tier system of national insurance contributions (NICs). Class 2 NICs are at a flat rate of £2.60 per week, if earnings exceed £5,315 per annum.
From April 2011, payments for Class 2 NICs will become due on 31 January and 31 July (the same as for a self assessment tax bill). Payment requests will be sent out in October and April, and payment can be made by various means, including Direct Debit (monthly or 6-monthly).
Profits between £7,225 and £42,475 are subject to Class 4 NICs at a rate of 9%. Any excess of profit above £42,475 is subject to Class 4 NICs at the rate of 2%, without any upper limit. Class 4 NICs are collected by HM Revenue & Customs and are payable at the same time as the instalments of income tax.
Advantages of becoming a Sole Trader
- Simple to operate, less stringent annual accounting requirements.
- You can draw cash from business as required normally with no tax consequences and pay tax on profits of the business each tax year
- Lower annual compliance costs
Disadvantages of becoming a Sole Trader
- Your personal assets can be available to your creditors if you fail to settle your debts
- Larger businesses normally dont like dealing with self employed businesses
- If you make profits in excess of £43K, these profits can be subject to 40% tax.
- Advice on becoming self-employed and registration with HMRC.
- Advice on tax and national insurance implications.
- Book-keeping Services.
- Advice on allowable expenses i.e subscriptions, spouses salary, use of home, travelling expenses e.t.c.
- Preparation of annual accounts.
- Preparation of Tax Return.
- Payroll for Employees/Spouse
- Tax Calculations and Tax Planning.