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Self -Employed taxes
How do I pay my taxes if I am Self-Employed?
For those that are self-employed, it is their responsibility to pay tax and National Insurance on all income. It’s important that they stay on top of their records (both sales and expenditures) in order to calculate how much is needed to hold back, and ultimately pay HMRC.
There are many forms of self-employment – other than a director of a limited company, often known as Personal Service Company (PSC). These include Gross Payment or CIS, which both give a worker the status of Sole Trader or “I’m my own boss”.
While there are huge perks for having self-employed status; flexible working hours, increase in pay, variety etc., there is a downfall…. Administration!!
By appointing an accountant to keep records updated, all relevant business expenses, tax (both personal and corporation, along with VAT and company profit & loss statements can be efficiently managed on your behalf). While some workers choose to do this themselves, it takes away the burden and time associated with managing business affairs. Umbrella Payroll companies also provide an alternative to contracting through a limited company since they tend to manage tax and National Insurance liabilities every month.
What are your obligations each year?
The contract worker will have to submit a Self-Assessment tax return for the previous tax year.
So using the 2018/19 tax year, they would need to submit a tax return by:
• 31 October 2019 for paper tax returns
• 31 January 2020 for online tax returns
The worker will, amongst other information, need to declare their total income for that period, along with business expenses. Once completed and submitted, the calculations for what taxes and National Insurance are confirmed. For the case of 2018/19, the taxes must be paid by 31 January 2020. If this deadline is not met, it will usually result in a fine by HMRC – certainly something to avoid! Certainly, advice can be obtained by a qualified accountant at any stage but those unfamiliar with the process should have their hands held early on.
National Insurance Contributions
All self-employed individuals are liable for Class 2 and Class 4 NI contributions which are charged at different rates.
The Class 2 National Insurance contribution is a fixed amount of £2.95 a week and it is only charged if your annual profits are £6,205 or more.
Class 4 NICs are only charged if your profits are £8,424 or more a year. They are charged at a rate of 9% of profits between £8,424 and £46,350, and 2% on profits over £46,350.
All of these rates are for the 2018/19 tax year.
Who can I turn to for advice?
Should a worker need any further assistance – those fed up with the endless number-crunching exercises - then we recommend talking to one of Futurelink Group’s main partner – Futurelink Accountancy Services. The senior accountant there is Heston Abraham who can be reached on 01923 277900 or email@example.com.
Alternatively, if like the idea of contracting through an umbrella payroll company, well it will come to no surprise that Futurelink Group is highly recommended for those seeking alternative options, ideal for those in the Construction Industry or Gross Payment relevant to other sectors such as oil & gas, aerospace, design and IT.
To find out more about what expenses can be claimed back, please see our advice page on contractor expenses.