[Closed] FAO: Self-employed

You should tell HMRC first. It's pretty easy. Only slight downside is once you are on their system you'll be doing a self assessment forever even if this is a one off job.

As for a certificate, I've not heard of anything. You'll get a reference code from HMRC but that's just a number. You may want some kind of liability insurance, it's pretty cheap unless you are doing something unusual, that'll come with a certificate. Lots of clients have asked for a copy of mine.

Also if you are working from home you'll need to tell your house insurance company. Shouldn't be a cost but best to be upfront

Hi Nick,

Thanks! With the self-assessment - the job is only to last 3 months, and then that's it. So can't I tell them I've 'finished' being self-employed?

Apparently you can de-register but I've heard of people having issues getting them to stop chasing you. Maybe its easier these days. TBH a self assessment is pretty easy to fill out if your finances are simple so I wouldn't let it worry you.

Who knows, once you try it you might like like it, very few people go back to working for the man once they've tasted freedom 🙂

Thanks again Nick.

So final question: can one be on PAYE at the same time? I'll likely go back to my normal job but who knows, if this company like me, they'll keep me on as a contractor.

I was an independent contractor for a couple of years and had to self-assess, but since I've been back working for someone else HMRC have never contected me in 7 years.

You can de-register at the end of the year, after you have done your Self Assessment.

A Unique Tax Reference will suffice as evidence your are self employed - you get it when you register as self employed. This is all we ask for when we employ freelance staff.

IANATL - you may want to check that you can do this with international company, rules are tighter around contracting for one company at a time. It may be just fine for a few months.

(they are based outside the UK)

How would they be paying you? To UK limited company that will then pay you, or direct?

can one be on PAYE at the same time?

You can be PAYE and completing SA for self employed work (you'll declare both on your SA)... or you can be solely self employed. Same form... but you have to tell HMRC which you are doing for NI reasons.

rules are tighter around contracting for one company at a time.

Sorry, but what do you mean by this? Actually, I do some work for a company in Switerland and will take another on soon. Is that a problem?

@Kelvin,

Directly.

You might well be expected to pay tax at both ends then. It's accountant time...

Both countries have dual tax treaties with the UK

Even if they do. Accountant time.

If you're currently self-employed you will/should be trading as limited company or sole trader.
Ltd Co means you will have certificate of incorporation; could you use that - and invite them to cross-refer to companies house to verify name/trading address?
Doesn't prove you're self-employed but it's as good as you're going to get - unless you have an accountant who will attest to your trading status.

I recommend you get an umbrella company to bill on your behalf. They will sort out your PAYE and tax code etc.

They will take a cut, but for three months it’s a lot off faff to do anything else.

Yea, they brought rules in (IR35), where i think if you worked soley for one company all year, you couldn't be self-employed (ie you were 'employed' directly).

Personally, I would do self assessment, which is a PITA but better than paying an umbrella company.

Don't bother with LTD unless you think they will take you to court over some dispute.

Other than registering Self-employed with HMRC, there is no official recognition, you can just 'become' self-employed.

Frankly, if you're billing the company, they just send you the money (ie no other presence in the UK) and you pay the relevant income tax through SA, I can't see there being a problem. I used to make voluntary class 2 NI contributions aswell.

You'll stay on PAYE at the same time and on the tax return, declare income from employment and self-employment separately.

Yea, they brought rules in (IR35), where i think if you worked soley for one company all year, you couldn’t be self-employed (ie you were ’employed’ directly).

It’s a lot more than that…

Initially they bought in tax/NI liability for engagers of self-employed, forcing most contractors to open Ltd Cos to stay working and not transfer that liability to the client.

Many worked out they could pay themselves minimum wage, and the rest as profit dividends after corporation tax and cut their tax liability.

Obviously the government and their agency paymasters/lobbyists were not fans of this so IR35 was brought in, whereby you had to prove you weren’t just working with an intermediary in the middle. If caught by IR35 you had 5% of revenue to pay for the company expenses and the rest had to go as PAYE.

I left contracting about 8 years ago, but recently (AIUI) they changed the rules again to make the engager responsible for any IR35 liability so obviously risk-averse companies have had to have another rethink!

Setting up a LTD company seems like too much trouble for an individual contractor and a bit dodgy if you're doing it just to avoid paying tax. I suppose IR35 is trying to stop that.

I think self-employed is the way to go but there may be further implications with a foreign-owned company, although I can't see why.

jim - any competent client should apply the HMRC IR35 test every time they wish to contract with a self-employed person.
In addition, anyone who is self-empliyed and in a role described as outside the regs should take out IR35 liability insurance.

philly - the only options, AFAIK, if you want to be self-employed are ltd co or sole trader.
Setting up a Ltd Co is not a tax dodge; also it takes minutes online to register a new company.
It takes much longer to open a business banking a/c - unless you opt for one of the online no frills options.

Thanks everyone so far...

Frankly, if you’re billing the company, they just send you the money (ie no other presence in the UK) and you pay the relevant income tax through SA, I can’t see there being a problem. I used to make voluntary class 2 NI contributions aswell.

So basically, at the end of the year I just tell them something like "I made 6k. Spent X on expenses" and that's it? Or are they interested where the income came from exactly?

Yes, sole trader would be the one, but as I said, you don't have to 'register' in any formal way like you do with a Ltd company at Companies House.

I'm not saying ltd companies are a tax dodge, but they shouldn't be used to dodge tax.

Anyhow, with a ltd company, you need to file returns with co house - which is more form-filling, but you do get more protection in case of legal claims. Seems a bit pointless if it's just you and one customer for 3 months, though.

On your tax return, there's no need to say where it came from. You just declare it as self-employed income. The benefit of being a sole trader is you dont *need* to keep accounts, but you should keep a record/receipts just in case.
If you have a ltd company and file returns at co house, you need to go into more detail - but I think there is an exemption if turnover is below a certain figure.
However, see my opinion/comment above re: fair use of that entity.

Or are they interested where the income came from exactly?

They don't care where it comes from to an extent. There are different sections; basic income, property, pension, and benefits but it's not broken down more. For outgoings, if you want to offset some against tax, then you can choose to give a total or split it into various headings. There is also a box to describe your business and another to give unspecified additional information. Not sure if it makes any difference, maybe if you get audited.

The other option is an LLP, which is more for solicitors and accountants, but could be applied to work for other occupations. From what I can see, you get some liability protection and don't have the responsibilities of a LTD, but you need at least 2 people.

@finephilly

Thanks, that's super helpful. I'm basically a language teacher and a company want some specialised classes for their students. I suppose at the end I can just put down that these hours were 'private tutition' in the say way I would if someoned wanted extra classes and hired me locally?

Yes. As I said, you don't need to be specific from a tax perspective. The details of what you do depend on the kind of entity you register, the hierarchy being (in order of level of detail/complexity):

Sole Trader
Partnership
LLP
LTD
Plc

Keep your receipts for expenses and log your hours/rate. Apart from that, you should be fine. I can't see a major issue with the fact it is a foreign owned business, especially if you pay voluntary class 2 NI for a few months.