Name: Aileen Scott
Company: Campbell Dallas
Campbell Dallas are Charterted Accountants, based in Renfrew, Glasgow.
UK is the self employment capital of Europe
Q: What are the benefits of becoming self employed?
As a sole trader, you are in control of your own business and all of the profits are retained by you. Decisions can be made quickly and you retain control over the direction your business takes. Self employment also carries benefits from a tax perspective as there are a variety of reliefs and allowances available.
Q: How do I register as self employed?
There are no administrative set up costs in becoming a sole trader, all that is required is to register with HMRC to let them know that you have started Self Employment and will be completing self-assessment tax returns. This can be done online on the HMRC website.
Q: How do I pay tax?
As a sole trader, you are responsible for completing your tax returns and “self assessing” your own liability each year on time. Unlike employees under Pay As You Earn, no tax will be deducted automatically from your earnings.
Profits from your business as a sole trader will be chargeable to income tax. The taxable amount will be the profit you make after deducting allowable expenses from your sales income, from which you can deduct your personal allowance (examples of allowable expenses are detailed below).
Q: Do I have to pay National Insurance?
If you are over 16 and your earnings are above £5,885 you will pay Class 2 and Class 4 contributions to National Insurance. Currently Class 2 contributions are paid at a flat rate of £2.75 per week and Class 4 are paid as a percentage of your annual taxable profits. Class 2 contributions pay towards state pension and benefits like Maternity Allowance and Bereavement benefit therefore some sole traders continue to make these contributions even if their earnings are below this level.
Q: When do I have to charge VAT?
From April 2014, if your business has a turnover of more than £81,000 in the previous 12 months, you will need to register for VAT. You don’t have to register for VAT if you sell only goods and services which are not chargeable to VAT.
Q: How do I record business expenses?
Business expenses for each trading period should be recorded on your Self Assessment tax return and can be claimed in two ways. Business expenses can be claimed on an actual basis or by using the “Simplified Expenses” method, introduced in 2013. This allows unincorporated businesses to use flat rates for the business cost for vehicles, working from home and living in your business premises. All other expenses should be calculated conventionally.
Q: What expenses can I claim?
Expenses incurred ”wholly & exclusively” in the course of business are deducted from your gross income figure, to arrive at your taxable profit. Examples of some of the main expenses and allowances you can claim are as follows:
Capital Allowances: On plant and machinery – items like computers, cars and equipment needed to run your business.
Motoring Expenses: a fixed rate for each mile travelled on business as well as any actual expenses related to motoring using detailed records of business and private mileage.
Premises: the cost of maintaining your business premises – including rent, rates, heat, light, repairs and insurance. If you run your business from home you can deduct the business proportion of these costs.
Administrative costs: the admin costs of running your business, including advertising, stationery, postage, telephone and fax.
Finance costs: you can claim the interest paid on loans of funds borrowed for business purposes.