Simon Peters FCCASimon Peters Associates Ltdsimon@petersassociates.co.ukPeters Associates Ltd www.petersassociates.co.uk
Overview Reasons for declaring income & paying tax Most common business structures for freelancers Sole trader – overvi...
Reasons for declaring your income ... Legal requirement – penalties up to 100% of tax dueplus interest if you don’t and a...
Most Common Freelancing StructuresIn increasing order of complexity …… Sole trader (2.8 million registered 2011) Partner...
Sole trader – trading under your own name Register with HMRC within 3 months ofcommencement File tax return and pay tax ...
Sole Traders – income taxIncome tax on profits –0 - 9,440 (PA) nil9,441 – 41,450 20% (32,010)41,451 – 159,440 40% (117,990...
Sole traders – national insuranceClass 4 NI on profits0 - 7,775 nil7,776 – 41,450 9% (33,675)41,451 + 2%Class 2 NI flat ra...
Taxation calculation – assume no other incomeFees £60,000 (May 13 – April 14)Expenses £10,000Profit £50,000Income tax Nati...
Taxation calculation Total liability for 2013/14 £13,024 due 31 Jan 2015 Plus payments on account for 14/15 of 50% of pr...
Company - Administration overview Register company – cost £13 using companies houseonline formation or use formation agen...
Company – taxation overview Corporation tax at 20% (historically low) Payable 9 months after end of the accounting year....
Company v Sole trader comparisonCompany Sole traderMore complex to register & administer Simple to register & administerCe...
Company v Sole trader comparisonCompany Sole traderOwnership can be transferred/sold bytransfer/sale of sharesOwnership no...
Company v sole trader tax comparisonAnnual NetprofitCompany tax Sole trader tax Difference10,000 461 454 -720,000 2461 335...
VAT issues Requirement to register when sales exceed £79,000 over any 12 monthperiod or voluntarily at any point 30 days...
VAT registration - problems if your clients aren’tvat registeredPre- registration Post-registrationmaintain salepricePost-...
Expense – allowable or not ?Type of Expense Sole trader CompanyTravel – train, bus, taxi etc Business travel – yesCommutin...
Expenses – allowable or not ?Type of expense Sole trader CompanyMeals, coffee etc Yes if working away fromnormal place of ...
Record keeping & accounting software Requirement to keep records for 6 yrs – penalties up to£3,000 Copies of bank statem...
Upcoming SlideShare
Loading in …5
×

The art of taxation for freelancers

331 views

Published on

Tax and accountancy overview for freelancers and other small businesses just starting out

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
331
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Why Register
  • The art of taxation for freelancers

    1. 1. Simon Peters FCCASimon Peters Associates Ltdsimon@petersassociates.co.ukPeters Associates Ltd www.petersassociates.co.uk
    2. 2. Overview Reasons for declaring income & paying tax Most common business structures for freelancers Sole trader – overview Company – overview Sole trader v company VAT issues Expenses – what’s allowable and what’s not ? Record keeping/accounting softwarePeters Associates Ltd www.petersassociates.co.uk
    3. 3. Reasons for declaring your income ... Legal requirement – penalties up to 100% of tax dueplus interest if you don’t and are then found out Provides a record of your income – for mortgages, rentreferences State benefits – pension, working family credits Credibility with clients – may require you to operatethrough Ltd or provide UTR numberPeters Associates Ltd www.petersassociates.co.uk
    4. 4. Most Common Freelancing StructuresIn increasing order of complexity …… Sole trader (2.8 million registered 2011) Partnership – two of more sole traders (450,000) Limited company (LTD) (1.3 million of which half haveno employees apart from director) Limited liability partnership (LLP) – hybrid ofpartnership and company (less than 100,000 ?)Peters Associates Ltd www.petersassociates.co.uk
    5. 5. Sole trader – trading under your own name Register with HMRC within 3 months ofcommencement File tax return and pay tax 10 months after end of taxyear Start trading 1 May 2013 First tax period 1 May 2013 – 5 April 2014 File return by 31 January 2015 Pay tax by 31 January 2015 (so nearly 2 yearslater)Peters Associates Ltd www.petersassociates.co.uk
    6. 6. Sole Traders – income taxIncome tax on profits –0 - 9,440 (PA) nil9,441 – 41,450 20% (32,010)41,451 – 159,440 40% (117,990)159,440+ 45%Peters Associates Ltd www.petersassociates.co.uk
    7. 7. Sole traders – national insuranceClass 4 NI on profits0 - 7,775 nil7,776 – 41,450 9% (33,675)41,451 + 2%Class 2 NI flat rate of £2.70/week – usually pay by DDPeters Associates Ltd www.petersassociates.co.uk
    8. 8. Taxation calculation – assume no other incomeFees £60,000 (May 13 – April 14)Expenses £10,000Profit £50,000Income tax National insurance9440 @ 0% 7,775 @ 0%32,010 @ 20% = £6,402 33,675 @ 9% =£3,0308,550 @ 40% = £3,420 8,580 @ 2% =£172Total = £9,822 Total =£3,202Peters Associates Ltd www.petersassociates.co.uk
    9. 9. Taxation calculation Total liability for 2013/14 £13,024 due 31 Jan 2015 Plus payments on account for 14/15 of 50% of previousyear liability (if over £1,000)£6,512 31 Jan 2015£6,512 31 Jul 2015 Importance of budgeting for tax paymentsparticularly in the first yearPeters Associates Ltd www.petersassociates.co.uk
    10. 10. Company - Administration overview Register company – cost £13 using companies houseonline formation or use formation agent/accountant Must have unique name Need at least one director Registered office Shares – usually 100 Company bank account File accounts 9 months after end of the year – heavyfines up to £1,500 if late/struck off File annual return – directors, shareholders etcPeters Associates Ltd www.petersassociates.co.uk
    11. 11. Company – taxation overview Corporation tax at 20% (historically low) Payable 9 months after end of the accounting year. This dependson date of incorporation –Incorporate 1 May 2013End of year 31 May 2014Tax due 28 Feb 2015 Optimum tax strategy is small salary below NI threshold 2013/14this is £640/mth or £7,680/yr take the rest as dividends – No National Insurance on dividends. No personal tax ifdividends don’t exceed around £30,000/yr.Peters Associates Ltd www.petersassociates.co.uk
    12. 12. Company v Sole trader comparisonCompany Sole traderMore complex to register & administer Simple to register & administerCertain company details available to thepublicAll details are privateNeed to file annual accounts with bothCompanies House and HMRC and Director’spersonal tax return and payrollOnly need to file personal tax returnAlmost certainly need accountant due tocomplexity of filing requirements, fees £700-1500/yrAccountant not necessary if affairs aresimple, fees £200-600/yrLimited liability – so creditors cannot comeafter directors in insolvencyPersonal liability for business debtsGreater credibility /prestige Lower credibility/prestigePeters Associates Ltd www.petersassociates.co.uk
    13. 13. Company v Sole trader comparisonCompany Sole traderOwnership can be transferred/sold bytransfer/sale of sharesOwnership not transferrable – assets can besole separatelyLosses can only be used against future orpast profits of the companyLosses can be used against other personalincome – useful if you have other sources ofincome – salary and expecting to make a lossin early yearsLower overall tax rate – 20% no NI Higher overall tax rate – tax 20% NI 9%Directors take money as mixture of salaryand dividends. Personal tax based onamounts taken not company profits – somore scope for tax planningOwner (self) takes money whenever theywant – personal tax on profits not drawings –so less scope for tax planningPeters Associates Ltd www.petersassociates.co.uk
    14. 14. Company v sole trader tax comparisonAnnual NetprofitCompany tax Sole trader tax Difference10,000 461 454 -720,000 2461 3354 89330,000 4461 6254 179340,000 6461 9154 2693Peters Associates Ltd www.petersassociates.co.uk
    15. 15. VAT issues Requirement to register when sales exceed £79,000 over any 12 monthperiod or voluntarily at any point 30 days to register. Registration with effect one month after month yougo over the limit Exceed limit in May 2013 Register from 1st July File returns every 3 months If your clients are vat registered themselves - large businesses, then itwon’t matter to then if you add vat as they will be able to claim back.Consider voluntary registration to reclaim vat on expenses Flat rate scheme – amount to pay based on percentage – oftenbeneficial to register If clients are members of the public or non-vat reg small businessesthen they won’t so will add 20% to cost to them – you may have toreduce your marginsPeters Associates Ltd www.petersassociates.co.uk
    16. 16. VAT registration - problems if your clients aren’tvat registeredPre- registration Post-registrationmaintain salepricePost-registrationmaintain profitSelling price 120 120 incl vat100 net vat132 incl vat110 net vatCost of sales 60 60 incl vat50 net vat60 incl vat50 net vatNet profit per sale 60 50 60Vat paid over 0 20-10 = 10 22-10=12Peters Associates Ltd www.petersassociates.co.uk
    17. 17. Expense – allowable or not ?Type of Expense Sole trader CompanyTravel – train, bus, taxi etc Business travel – yesCommuting between homeand office – noTemp workplace yes up to24mths or 40% of week - yesBusiness travel – yesCommuting between homeand office - noTemp work place yes up to24mths or 40% of week - yesTravel - car Yes – claim either actualrunning costs less private usepercentage or mileageYes –mileage only 45p/25pper mileEntertaining Client – noStaff – yes up to £150/yrClient – noStaff including directors£150/yrWorking from homeexpenses – rates, rent,mortgage interest, light, heatYes – either flat rate £4-£15/wk or detailedcalculationYes – flat rate £4-£15/wk orrental agreement withdirectorPeters Associates Ltd www.petersassociates.co.uk
    18. 18. Expenses – allowable or not ?Type of expense Sole trader CompanyMeals, coffee etc Yes if working away fromnormal place of businessYes if working away fromnormal place of businessSmart phones Yes but deduct percentagefor personal useYes allow allChildcare Not at present – changingfrom 2015Yes – up to £55/wkTraining Yes – providedupdating/refreshing existingskills not acquiring new onesYes – providedupdating/refreshing existingskills not acquiring new onesPre-trading expenses Yes – up to 7 years prior totradingYes – up to 7 years prior totradingPeters Associates Ltd www.petersassociates.co.uk
    19. 19. Record keeping & accounting software Requirement to keep records for 6 yrs – penalties up to£3,000 Copies of bank statements, sales invoices, expenseinvoices, payroll, vat returns Electronic copies are ok Use of bookkeeping software recommended –spreadsheet, VT Cashbook (free/excel based) , Xero,Free agent (subscription/cloud based), Sage (annuallicence - large businesses)Peters Associates Ltd www.petersassociates.co.uk

    ×