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Self Employed Registration

   

Added on  2020-03-16

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U.K. TAXATIONPART – ONESELF-EMPLOYED TAXPAYERSelf-Employed RegistrationAs you are working for yourself, you will be recognised as a Sole Trader by HMRC. Itis required that you willregisterand file a tax return every year under Self-Assessment.You will also be required to register for Class 4 National Insurance at the earliest, afterstarting your business. Since you are in the second year of your business, if you registerby 5 October you can save yourself from being fined. In case you chose to registeronline, you will be provided, within 10 working days, a letter denoting your 10-digitUnique Taxpayer Reference (UTR) to be enrolled for online service under the Self-Assessment say Ault, Arnold & Gest, (2010).Your ResponsibilitiesAs you have not informedHMRCso far, you need to send a return immediately foryour previous years and for your current year onwards you shall:keepall records concerning sales andexpenses for your business;file a tax return every year underSelf-Assessment; andpayIncome Taxon your profits and Class 4 National Insurance. VATSince your turnover is less than £85,000 you are not required to register for VATprovided you do not sell to another VAT-registered business and require a claim of theVAT paid, assert Miller & Oats, (2012).Personal AllowancesThis is the amount which is exempt from income for an individual before calculatingtheir tax liability.Allowances2017 - 20182016 - 20172015 - 20162014 - 2015Personal Allowance£11,500£11,000£10,600£10,000Source: https://www.gov.uk/government / publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

National Insurance ContributionsContribution to National Insurance is compulsory if you are above the age of 16 yearsand are:an employee earning more than £157 a weekorare self-employed earning above £6,025 in a year.As you are a Class 4 registered contributor, you are required to contribute equivalent to9% of your profits earned between £8,164 and £45,000 and 2% of profits above over£45,000.Source: https://www.gov.uk/national-insurance/how-much-you-payI would suggest that you use Direct Debit for paying your National Insurancecontributions as this will allow you to make payments on time and not miss a payments.Tax Return DeadlinesSince you will be filing an Online Tax Return, the last date for filing will be 31 Januaryafter ending of the tax year, as per Forte & Oppenheim, (2011).Payment DeadlinesDeadline for depositing the balance payment of what you still owe for yourprevious tax year is 31 January. This is also the deadline for first payment towardscurrent tax year.Deadline for depositing second payment for the current tax year is 31 July. (a)Liabilities for 2015-16When you pay your taxes or send your return late, you are liable to pay the followingpenalties – Penalty for submitting a late return£1,600What is your tax bill for the year£0Interest to be charged for late payment£0Penalty for late payment of Tax£0Penalty for late payment of National Insurance£100Estimate of the Total Penalty amount£1,700Liabilities for 2016-17(i)Income Tax: 5% of £1300 £65 (£18,000 - £11500 = £6500*20% = £1300)

(ii)National Insurance: £100(iii)Late Filing Penalty: £100Estimate of the Total Penalty amount£265Source: https://www.gov.uk/estimate-self-assessment-penalties/y/2015-16/online/2018-06-30/2018-06-30/0.0(b)ISSUESTwo issues can be faced by Janice on account of late declaration of her self-employmentstatus – (i)The income and expenses account submitted by me could be challenged byHMRC as there will not be sufficient documents with Janice to prove herclaims.(ii)HMRC may levy a higher threshold of tax and thereby Janice may have topay higher tax.(a)Family RelationshipIt is professional ethics for me to report my relationship with a client to my superiors.(b)CommentSuch comments do not carry any substance in the eye of the authorities unlesssubstantiated by documentary evidence, say Hoffman et al, (2015).PART – TWOSOLE TRADER vs LIMITED COMPANY SOLE TRADERCOMPANYIn this table I have explained some of the salient features which differentiate a SoleTrader from a Company from the point of view of taxation authorities.Employment StatusYou cannot be your own employee whenyou are self-employed.Although a director is an office holder,this does not make the director anemployee under employment laws or theNational Minimum Wage or for TaxCredits.An office holder will be treated as anemployee only for the purpose of IncomeTax and National Insurance.

Extracting ProfitsCash can be withdrawn by the ownerwithout attracting tax.As a director, your withdrawal from thecompany is taxed as income. It is taxedas a dividend if it is paid as a distribution.Since it is an earning, it is treated underPAYE and is subjected to NICs.Most of the employment benefits paid toa director or family members are taxable,provided they are not tax-free.Any shares or securities of the company,given to a director below their marketvalue are taxable.Paying YourselfThe owner can withdraw any amountfrom the earned profit and it is not treatedas remuneration as the owner is not anemployee.There are no restrictions on the amountof salary to a director, but it has to besubjected to PAYE and NICs.Payment of salary to the spouse or familymembers by the owner has to be justifiedto the authorities to be allowable.Payment of salary to the spouse or familymembers of a director has to be justifiedto the authorities to be allowable.In case of an employment contract fallingunder the IR35 rules or the company is amanaged service company, it is necessaryto apply PAYE and NICs to income.Tax-free Benefits and IncentivesThese are not applicable in case of SoleTraders.Various employment incentives andbenefits can be provided free of tax andthe company will also get tax relief onthe cost incurred for providing these.BorrowingOwner is free to borrow any amount fromthe bank account of the business.Directors are permitted to borrow fromthe company.In case the borrowing by the owner isfrom an overdraft account maintained forcommercial purposes, then the tax reliefon bank charges and interest will beproportionately applied on the amountwithdrawn personally by the owner.Companies Act 2006 has set limits withtax costs: The company is liable to paytax @32.5% if the borrowing takes placeafter 5 April 2016 and the loan is notrepaid within nine months from the yearend.Tax on ProfitsOwner contributes either to Class 2 orClass 4 National Insurance and paysIncome Tax on the taxable profit ofearned by the business. Both these varyaccording to the amount of profit earnedThe company is required to paycorporation tax on the taxable income.Company tax rates are lower than thehigher rates of Income Tax.

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