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1. What are my obligations under Self-Employment?
You are classed as self-employed if you work for yourself, and are not employed as an employee. You may be the sole proprietor or a partner in business. As a self-employed individual, there are several tax obligations that must be met, including:

– Register as self-employed with the HMRC
– Keep business records for a minimum of seven years
– Complete and submit a tax return annually to report your business income and expenses
– Notify the revenue of any change of address within 1 month
– Notify the revenue of dissolved business within 1 month
– Pay the tax owed

2. When does my income become taxable?
Most individuals receive a basic personal allowance where income is not taxable. For 2015-16, this is an allowance of £10,600, having risen from £10,000 in 2014-15.

3. What is classed as expenses?
In simple terms, HMRC states that you cannot deduct expenses unless they are ‘incurred wholly and exclusively in the purpose of business’. This will include:
– Motoring expenses/business mileage
– Use of home as office i.e. extra heating and lighting bills
– Administrative costs, advertising & marketing, and staff expenses

4. What is not allowable as expenses?
This will include:
– Travel between home and place of work
– Any monies drawn from your business
– Meals (other than lunching outside of your normal routine, i.e. occasional business lunch)

5. When is my tax return due?

The tax return deadline is the same every year. By January 31st, your Self-Assessment must be completed and submitted to HM Revenue & Customs. Any submission later than this date will leave you subject to a minimum fine of £100.

6. Do I need a business account?

As a sole trader, a business bank account is advantageous, but not compulsory. There are a number of benefits to opening a business account including:
– Conditions of a personal account may prevent business usage.
– Bookkeeping made easier if business transactions are kept together.
– Being able to monitor the balance of a separate account can give a better idea of profit and loss.
– A business account may offer other ‘extras’ which might be useful for you and your business.

7. What is the benefit of an accountant?

This often depends on the complexity of your accounts, and whether you are confident to complete them yourself. Accountants are regularly hired to complete accounts at the end of each tax year and file self-assessment tax returns on your behalf, beneficial in ensuring you avoid HMRC fines.

8. I have tax stopped at source, how does it work?

Under the Construction Industry Scheme, a contractor pays a subcontractor, but will normally make deductions at source at a rate of 20%. These deductions count as payments made in advance towards the sub-contractor’s tax and National Insurance. Whereas contractors must be registered under the CIS, sub-contractors do not, however in this case payment deductions tend to be higher (normally at a rate of 30%). Types of construction work covered in the scheme includes:

– Site preparation, construction, repairs & alterations, decorating and demolition.
At the end of the tax year, a tax return recording your income and CIS payments must be submitted to HMRC to confirm your earnings. Any money owed to the revenue must be paid, however if it works out that you have overpaid, HMRC will pay you the money back.

9. Can I employ people under Self-Employment?

You can still employ people when self-employed, but you must collect income tax and National Insurance Contributions (NICs) from them, payable to HMRC. For these purposes, a payroll system will need to be set up.

10. Am I better off as a Limited Company or is Self-Employment better for me?

Both have their advantages. To answer this question, a number of considerations need to be made.
Limited company advantages:
– You are likely to pay less personal tax than the self-employed.
– Those in self-employment are personally liable for any financial losses whereas running your own limited company leaves you more protected if things were to take a bad turn. A limited company is a separate entity from the owner(s).
– Tax is charged at 20% for profits up to £300,000. In self-employment, rates are as high as 45% for taxable income over £150,000.
– Limited companies have a higher borrowing potential.
Advantages of Self-Employment
– You are the owner, meaning you have more flexibility in when you work.
– You may receive tax relief for business expenses.
– You are able to draw and borrow money from the business account; it is yours.
– It is not compulsory to prepare accounts, but may be beneficial in terms of keeping on top of your business profits. However, annual accounts are necessary for personal tax returns.
– Financial rewards. A successful business may become profitable.