Tag Archives: self-employed

When do you need to submit a self-assessment?

Despite ongoing consultations and efforts to simplify the system, many taxpayers are still left unsure of what it is they’re meant to do.

Since filing a self-assessment late carries a hefty penalty fee, knowing when you’re required to complete a tax return is very important.

The chances are that, if you completed a self-assessment for the last tax year, you’ll need to do it again this year. HMRC tend to issue letters informing people when completing Self Assessment forms are no longer necessary, and they actively urge taxpayers to tell them as soon as their situation changes.

A spokesperson for HM Revenue and Customs stated “people with slightly more complex affairs may have to fill in a tax return but it all depends on their personal circumstances.

“We don’t want anyone to fill in a tax return unless it’s absolutely necessary.”

So, how do you know if it is necessary for you? HMRC will judge whether or not they need you to complete a Self Assessment based on a few different factors. Here are some of the more important points to consider –

Your income

As a rule, anyone with a taxable income of more that £100,000 will automatically be required to fill out a self-assessment form.

If you make any income over £10,000 from savings, investments or shares, you’ll also need to report it to HMRC.

Say you sold your holiday home or some shares to your business in the last year. You would need to disclose that income on a self-assessment in order to pay the Capital Gains Tax that you owe.

In most cases, though, if your only income comes from your wages as a non-shareholding employee/director or pension, you won’t need to submit a return.

Your role

If you’re self-employed, or were self-employed at any point over the past tax year, you will need to submit a Self Assessment. You will be allowed to deduct some allowable business expenses from your income before working out how much you owe in tax.

Company directors also need to complete a Self Assessment unless they work for a non-profit organisation and do not receive any pay or benefits. Trust and registered pension scheme trustees must complete tax returns.

As a landlord, you may not think of yourself as self-employed or as a business owner. But, in HMRC’s eyes, you are. You must report all income you receive in rent but you will be able to deduct revenue expenditure from your profits to reduce your tax liability.

Depending on your individual circumstances, you may need to send a return even if you do not fall into any of these categories. For example, religious ministers and Lloyd’s underwriters are also liable for self-assessment.

Other types of income

Even if your usual income does not meet the HMRC criteria for requiring a Self Assessment, other factors may mean you still need to fill out a tax return.

This could include your partner’s income too. If one of you makes more than £50,000 a year, and either you or your partner are claiming child benefit at the same time, you will need to report it on a self-assessment form.

Income from overseas is also taken into consideration. Any tax owed on income in other countries must be put on your tax return. Even if you were living abroad yourself, you’ll need to pay the tax on any UK income you made during that time.

If you have received a P800 from HMRC saying you didn’t pay enough in the last tax year, and you have not already payed what you owe through your tax code or voluntary payment, it will be added onto your total tax bill.

Work with us

In any case, if you receive a letter or HMRC telling you to send in a tax return, you must submit the form. Even if you don’t have any tax to pay, going against HMRC could result in fines or even trigger an official investigation.

The Self Assessment process can seem daunting, especially with new tax changes being announced every year. If you need any advice or guidance through submitting your tax return, speak to us today on 01872 271655, or email us on enquiries@kelsallsteele.co.uk

Self-employment Business start-ups – FAQ

Self Employment FAQ

Starting-up in business, becoming self-employed, can be a bit of a daunting process, especially if you are not sure of some of the steps you need to go through. There are a few ‘hoops’ you need to jump through so we have put together a few basic pointers for those who are thinking of making that move in self-employment.

We can help you at every step of the way, so please feel free to contact us if there is anything you would like further information on or help with.

  1. Do I need to tell HMRC?
    • You will need to register as self-employed with HMRC and the easiest way to do this is online at gov.uk. Tell them as soon as possible after your self-employment begins.
  2. What will they ask me?
    • Your National Insurance number, address, date of birth and details of the business including nature of the business, date it began trading and your business address. If you have previously registered as self-employed you would have had a 10 digit unique taxpayer reference number. They will ask for this if you have it.
  3. Do I need to register for VAT?
    • You only need to register for VAT when your sales exceed £83,000 in a rolling 12 month period. However, you may wish to voluntarily register to enable you to claim back the input VAT on your expenses. This does mean you have to charge output VAT on your sales so it’s only advisable to voluntarily register if this will not affect your competitiveness e.g. if your customers are VAT registered and can reclaim the VAT you charge them.

Don’t forget that if you become VAT Registered you will need to file VAT Returns online with H M Revenue & Customs. You will need to create a Government Gateway account and register to file VAT Returns online. Make sure you allow enough time for this process before your first VAT Return becomes due!

  1. Do I pay myself a salary?
    • No, the money you draw from your business is not classed as a salary and is not a business expense. You do not pay tax on the money you draw from the business, only on the business profits. You can of course employ other people and pay them a salary which is a business expense.
  2. When do I pay tax?
    • Your first tax return will run from the day you start self-employment up to the following 5 April. Any tax will be due on the 31 January following that e.g. if you start self-employment on 1 June 2016, your first tax return will run to 5 April 2017 and if you have made a taxable profit, you will pay tax on 31 January 2018.
  3. Do I need to register for national insurance?
    • When you register as self-employed you will automatically be registered to pay national insurance. If your income is high enough, you will pay national insurance at the same time as any income tax.
  4. What records should I keep?
    • You need to keep records of your business income and expenditure. This will include bank statements, sales invoices and purchase invoices, details of the entries on your VAT Return and payroll records if you employ people. Keep records for at least 5 years from the 31 January following the tax year e.g. you must keep your records for the year ended 5 April 2016 at least until 31 January 2022.
  5. What happens once I’ve registered as self-employed?
    • HMRC will issue you with a unique taxpayer reference number and send you a notice to complete a tax return. You will need to enter on this tax return all your business income and expenditure to calculate your taxable profit and any tax that may be due. The tax return needs to be filed by the 31 January following the tax year end date (e.g. tax returns for the year ended 5 April 2016 are due to be filed by 31 January 2017).
  6. Aren’t things changing soon?
    • Yes! Over the next few years the Government’s plans to ‘make tax digital’ (MTD) will be rolled out and, depending on the size of your business, you may have simpler rules to follow for reporting your income and expenditure. You will also have to report more regularly, probably 4 times a year. More details will follow as they come through!

LLP Employment status of members

HMRC have issued further guidance in respect of the LLP employment status of its members following the publication of draft legislation in the Autumn Statement in December 2013.

The new rules will treat a member of the LLP as an ‘employee’ if all three of the following conditions below are met.

Condition A –Disguised Salary

This is the key indicator for determining if an LLP member is a salaried member. The test is applied ‘looking forward’ on the basis of the arrangement in force at the time.

What would constitute a disguised salary:-

  • An amount that meets any of the following requirements:-
    • It is fixed; or
    • It is variable, but varied without reference to the overall amount of the profits or losses of the LLP; or
    • It is not, in practice, affected by the overall profits or losses of the LLP
  •  If 80% or more of amounts payable by the LLP to the member are for services this would constitute a disguised salary.

What wouldn’t constitute a disguised salary:-

  • Any benefits firms might pay on behalf of members through the profit and loss account e.g. health insurance; cars etc. are not treated as part of the potentially disguised salary.
  • Payments to a former active member of the LLP (i.e. one who provided services to the LLP in the past but is now ‘non serving’) do not constitute disguised salary payments.
  • An individual’s profit share needs to be exposed to the variable profits of the whole business to avoid being treated as disguised salary. It is acceptable for those profits to be allocated based on a personal, team, or office performance basis.
  • Drawings do not represent a fixed share, providing they are no account of anticipated profits and are ultimately repayable if such profits are not achieved.

Condition B – Significant Influence

This condition is met if the mutual right and duties of the members and the LLP do not give the member significant influence over the affairs of the partnership.

The legislation refers to those individuals who do not have significant influence, i.e. those that merely work in the business rather than carry it on. Examples of those who do have a significant influence include those who are involved in the management of the business as a whole, or senior members of a firm who may have little interest in day-to-day management which they leave to others but their roles and rights mean that they can exert significant influence over the business as a whole.

Condition C – Contribution

This is the condition of choice for law firms to focus on.

This condition is met if the members contribution to the LLP is less that 25% of the disguised salary and it is reasonable to expect that it will be payable in a relevant tax year in respect of the members performance of services for the LLP.

HMRC’s guidance states that providing by 6 April 2014 there is an unconditional requirement for members to contribute capital funding and that capital funding is actually in place within 3 months of 6 April 2014, then this will count in terms of measuring a members’ capital of the purposes of this condition.

There is a similar relaxation for new members who join after 6 April 2014. They will have 2 months to introduce capital after their appointment providing the requirement to contribute is also unconditional from the date they become a member.

The guidance clarifies that current account balances, undrawn profits, tax reserves and sums the member can recall at their discretion do not constitute capital.

Members meeting all 3 conditions

If all three conditions are met by a member then that individual is a salaried member and will be treated as an employee for tax purposes, subject to PAYE and tax on any benefits in kind.

The Gov.uk website provides full guidance on LLP salaried members as well as examples for each condition.

For further information or guidance on any of these points you can contact James Tregay on 01872 271655 or via email at james.tregay@kelsallsteele.co.uk