Updated: Feb 26, 2019
Hot-desking, freelancing and contracting and the digital age well on it way and here to grow with AI application and easy document sharing platform, we wanted to explore what is the lifestyle of a Self-employed person the benefit and the pitfall to be self-employed include the taxes associated with the status of being Self-employed and Self-employed Limited company.
We surveyed 250 self-employed professionals in order to compose this article and researched UK Government data to provide some of the information we are about to conveys to you about self-employed and National Insurance contribution as well as income tax and VAT and how to join Making Tax Digital.
Benefit and Pitfall of Being Self-employed
Being self-employed gives you freedom to dictate your own working hours – deadline and client needs dependent. However, our findings show some surprising results in how the self-employed interact with their friends and family, as well as the holiday time they take. Over a third (38%) of those surveyed spend under four hours with their family each week – the equivalent of less than 34 minutes a day – which could be just a quick meal a day to catch-up with their loved ones. One in five don’t see any friends on a weekly basis, with 16% spending under an hour socialising per week. Which also demote that they do not participate in networking session and attend business event which are part of business to meet with other like minded entrepreneurs.
Despite the freedom to head out of the workplace at your own discretion, self-employed workers’ commitment to work is still as present as the traditional workplace and there is no differences in the running of your company it is just on a micro scale and you do not have staff to help as yet to manage some areas of your business.
Perhaps the most surprising discovery from the people we surveyed was that one in five self-employed don’t take any holidays at all. Naturally, there are no set holiday days when you’re working for yourself – an element of many that allows much more freedom than the regular workplace. However, the pressures to keep clients happy and maintain relationships to avoid them going elsewhere could mean extra stress for some and more professionalism and excellent service for others.
For some survey perfect project delivery is of such concern that one individual surveyed was even scared to take holidays in case their clients go elsewhere which shows a lack of experience in self-management the business including leadership skills as you need to take holiday and breaks if you want to be able to carry on working and serve your customers need that does not mean they will go elsewhere either but you just need to informed them you will be off for a certain period of time and when you are re-opening.
From the self-employed we surveyed, working hours were still consistent, with the majority (33%) working between 30 and 39 hours per week. Only one in five self-employed workers committed to 20 hours or less per working week, while 10% worked over 50 hours per week. Which is over the 48 hrs week allowed per week legally.
Of course the opt-out agreement does not apply for self-employed but to avoid burnout it important to self-discipline oneself and work up to 45 hours per week and take regular break and come out of your office on occasion and go for bike ride as Girlfridayz does, go to the Gym or a walk you will feel refreshed and ready for your working day. There is no such thing as I do not have time this shows a lack of organisation and time management. What a self-employed need to do is to learn to prioritise and work smarter as opposed to longer.
35% of self-employed workers, who cite their main worry as uncertain income. Being your own boss means having to source your own work and regularly chase invoices and late payments, all contributing to concerns of an inconsistent workload and therefore an unpredictable income.
Bonus for the most part, completely unattainable for the self-employed – or is certainly less predictable since it comes at their client’s discretion. On occasion some customers may pay you a bit more than what you are asking for a service as they are very impress with your work or decide you do not charge enough for what you do. Both of these cases happened to us at Girlfridayz for work carried out for our customers.
Self-employed need to chase their bad debt has it takes away profit, income gain and humper the grow of your company as there is less fund entering the company. Also you should not hesitate to take persistent non-payer to the small court to reclaim your money and use debt collector company.
Overall, 90% of self-employed workers are happier in their new careers than when in traditional employment, with freedom and flexibility being the key factor as to what they enjoy most (63% cited freedom/flexibility as the main enjoyment factor), and 15% of this group enjoying not having a boss or having to answer to someone senior the most.
Several factors come into play for day-to-day satisfaction in self-employed life – most notably freedom, being your own boss and being able to fit work around other commitments. Just under 40% of self-employed workers, a significant proportion of those surveyed, said they didn’t miss anything at all from the typical working environment.
Comparing the lifestyles and job satisfaction of the self-employed and traditional employees raises the question of which is the most desired. With the number of people taking on freelance work increasing from 1.4m to 1.9m since 2008, and the attractiveness of an on-demand workforce appealing greatly to businesses of all sizes, we expect to see an increasing number of those employed in traditional roles moving to self-employment in the coming years. You can be both employed and self-employed at the same time, for example if you work for an employer during the day and run your own business in the evenings.
Self-employed and Taxes
The Government objective is to raise the Personal Allowance to £12500 and the Higher Rate to £50000 threshold by 2020 to 2021. The Basic Rate limit will be set at £37500 for the tax year 2019-2020 and the Higher Rate to £50000. This apply to non-saving and non-dividend in England, Ireland, Wales and the UK with Scotland applying the same principle since 2017.
The table below set out provision forecast of the CPI inflation and will be subject to changes throughout tax year 2019 onward to 2024 setting provision for a duration of 6 years in line with the Office for Budget Responsibility.
2018 to 2019 to 2020 to 2021 to 2022 to 2023 to
2019 2020 2021 2022 2023 2024
(PA) £11,850 £12,500 £12,500 £12,760 £13,030 £13,310
(BRL) £34,500 £37,500 £37,500 £38,300 £39,200 £40,100
In line with the latter provision the National Insurance contributions upper earning limits and Upper Profits are aligned with the Higher Rate threshold and will therefore increased in 2019-2020.
A reduction in income tax for the populations of income tax payers in 2019-2020. However, the overall employment outcomes will also depend upon other factor and measures announced as well as aggregate labour demand and the performance of the wider economy.
Self-employed and NI
If you are self-employed you have two type of National Contribution depending on profit made Class 2 if your profits are £6,205 or more per year and class 4 if your profits are £8,424 or more a year up to £46,350.
Class 2 as a set amount to be paid weekly £2.95 per week currently for tax year 2018-2019 and Class 4 as two different percentage 9% on profits between £8,424 and £46,350. An additional 2% on profits over £46,350.
Compared to the traditional employees who paid Class 1 on income earn at a different percentage 12% on earning between £8,632 and £50,024. An additional 2% on earning over £50,024. You can see that there is an incentive given by the government for self-employed to pay their NI contribution by offering a lower percentage as self-employed earning can be less predictable as they depend on client needs and payment of invoices.
At Girlfridayz we support self-employed and SMEs with business support and marketing notwithstanding digital marketing and we have improved our calculator Profit and Loss account Lucy to include Class 2 and Class 4 NI contribution for Self-employed at the right rate for tax year 2018-2019 and tell you if you made a profit or loss as well as if you are liable to income tax and NI contribution or not. Lucy take in consideration your Personal Allowance, your expenses and if you blind Lucy take in consideration your increase in Personal Allowance of £2,390 for tax year 2018-2019.
Please, give Lucy a try she will amaze you and she is accurate and can help you with your tax return if you are self-employed or SMEs as the process is the same two bits of income are needed all your incomes and expenses and most people in the UK get a Personal Allowance of tax-free income. This is the amount of income you can have before you pay tax.
How to Use Lucy
To use Lucy enter your incomes and expenses in the form field, then select the month you are conducting your profit and loss account and select the tick boxes which apply to you.
If you are self-employed Lucy will calculate your profit if any after deducting your expenses and your personal allowance and if you are eligible to pay class 2 or class 4 NI contribution.
If you are blind Lucy will calculate your personal allowance with an increase of £2390 and will calculate your profit if any after deducting your expensive and your personal allowance and calculate your NI contribution class 1 or class 2 or 4 depending if your self-employed or not.
If you are not self-employed or blind you do not need to tick as Lucy will calculate your profit if any after deducting your expenses and personal allowance and calculate your class 1 NI contribution.
Lucy also calculate your income tax at the right percentage 20%, 40% and 45% according to the level of profit entered after deducting expenses and personal allowance. Lucy will give as a result if you made a loss or a profit for the year and any taxes to be paid if any.
Lucy can help you improve your result if you see that you not making a profit or a sizeable profit or your loss is to great. You can improve your performances by looking at the result and make any adjustment you see fit to ameliorate your performances, therefore, Lucy helps you to grow your business.
I am Lucy your Profit and Loss calculator
How to determine your profit as self-employed
It is easy to work out your profit you just need to deduct your expenses. You can only declare allowable expenses to the HMRC here an example on how to work out your profit.
example: Your turnover is £40, 000 and your allowable expenses are £10,000 your profit is £30,000. You will only pay taxes on the remaining £30.000 this is know as taxable profit.
Bear in mind that allowable expenses does include money taken from your business to pay for private purchases. As a self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.
Costs you can claim as allowable expenses
office costs, for example stationery or phone bills
travel costs, for example fuel, parking, train or bus fares
clothing expenses, for example uniforms
staff costs, for example salaries or subcontractor costs
things you buy to sell on, for example stock or raw materials
financial costs, for example insurance or bank charges
costs of your business premises, for example heating, lighting, business rates
advertising or marketing, for example website costs
Did you know that all Girlfrdayz.com services are expenses to you and our services are allowable expenses as we provide marketing services, digital marketing services, website design and SEO, copywriting and back-up admin for self-employed and SMEs.
Hence to you we are tax deductible and work in the background taking care of your business processes to ensure they runs smoothly and your foundations are solid while you carry on doing what you do best selling your products or services. As a side note we want to tell you that you cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.
Running a Limited Company as a self-employed limited
If you run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.
You are also the Director of your company and that title comes with a set of responsibilities. You need to follow the company’s rules, shown in its articles of association, keep company records and report changes, file your accounts and your Company Tax Return, tell other shareholders if you might personally benefit from a transaction the company makes and pay Corporation Tax.
You can hire other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance. You may be fined, prosecuted or disqualified if you do not meet your responsibilities as a director. Contact your professional adviser or trade association to find out more.
Taking money out of your limited company
You can take money out of your limited company but it depend on what it is for. If you want the company to pay you or anyone else a salary, expenses or benefits, you must register the company as an employer. The company must take Income Tax and NI contributions from your salary payments and pay these to the HMRC, along with employers’ NI contributions.
If you or one of your employees make personal use of something that belongs to the business, you must report it as a benefit and pay any tax due. You can also pay dividend which is a payment a company can make to shareholders if it has made a profit.
Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income. the first £1,000 of income from self-employment - this is your ‘trading allowance’. You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’. The amount of tax you pay can also be reduced by tax reliefs if you qualify for them.
It's wonderful to be your own boss and running your business, manage it operation and performances but it comes with a set of responsibilities either be self-employed or self-employed limited. You must keep your record of all earning and expenses as this a legal requirement, you must give a receipt of purchase to your customers and invoices plus details of your offices. If you run your business from your office you do not have to give the address of your office. You can use a P.O box or Virtual office they can provide you with business addresses and more services.
You do not have to register for VAT and the VAT threshold currently is £85000. If your turnover is £85000 or more you must register for VAT and keep record of VAT charge and submit your VAT returns. The Government is changing the way you send VAT information and going digital. The new service is know as Making Tax Digital and all VAT registered business need to start using it now and must use the service this year if they have a taxable turnover of or above the the UK VAT registration threshold.
to use this service you will need to keep your records digitally and submit VAT returns using software that works with Making Tax Digital and you will need to do this for your first VAT return for the period starting on or after 1st April 2019. To sign up to join Making Tax Digital go to www.gov.uk and search for 'use software to submit your VAT Returns' or ask your accountant to do this for you.
If you enjoy this blog post article please, comment, share amongst your peers as the information is useful for anyone self-employed to get the in and out of business management and taxes as a self-employed individual in the UK. Do visit our website for more Business Support to support you with solution oriented for you or your business needs as our services are for B2B and B2C customers.