Sustainable Development and the Media

Two new guides launching, to help development charities and media understand each other better.

Self-employed national insurance – more changes

The days following a budget announcement are always interesting to me. As the headlines fade it's possible to delve into the small print and find quite substantial changes that no one seems to have noticed.

The one that's caught my eye this year is the proposed change to national insurance (NI) for sole traders. In fact there are two changes coming up, one of which is definitely happening, and another which might not, but which has significant knock-ons.

Firstly, as I've written before, from April 2015 sole traders will no longer have to pay Class 2 NI separately. It will be accounted for (and paid for) through the tax return system. The bill will come at end of the year, so no monthly direct debits or six monthly cheques are required from April. The rate of Class 2 NI from April 2015 is calculated at £2.80 per week, and you can read more on gov.uk.

So far so sensible.

The second proposal, announced yesterday, is to "abolish class 2 NI". Now, we've been here before with the word "abolish". (See Gordon Brown's budget in 2007.) It seems like a good idea to abolish a tax. But national insurance is a kind of tax which brings benefits. So if you abolish a whole class of NI there is a danger you might abolish the benefits for the people who used to pay it.

At the moment Class 2 NI makes you eligible for state pension, ESA, maternity allowance and bereavement benefits. No one's suggesting that self employed people shouldn't get any of those. But how will the Department of Work and Pensions know you're eligible if Class 2 doesn't exist?

One suggestion is that Class 4 NI (already paid by sole traders through the tax return system) will be part of the eligibility test. The problem with that is that Class 4 is only paid if your profits are high enough. What about sole traders with low profits?

Or are they saying that sole traders should be eligible for these benefits from the point of registration, even when no financial contribution to NI is made?

Watch this space. And do bear in mind that this might be kicked into touch if the Tories don't get in in May.

If you're interested you can read more on this from a proper accountant here.

Connected to this is the proposal to "abolish" the tax return, which has been generally well received. At some point it will be possible for you to enter all your income and expense information on a digital portal of some sort, and pay your tax as you go along.

The date being talked about is 2020, but a version of this is going to start as soon as 2016 for some small businesses.

Plenty to keep an eye on in the coming years.

Posted on 19 March 2015

How to work out your price

New freelancers and sole traders often ask me how much they should charge. The short answer is to look at the existing market and see what people like you are normally paid.

On a similar topic I came across this episode of the BBC's Bottom Line programme. It looks at how certain businesses charge for their time in different ways. Evan Davis talks to an online estate agent, a lawyer and someone from a big advertising agency.

It's a fun listen, and here are a couple of ways of getting to it:

Posted on 11 February 2015

Getting tax back

I meet quite a few people on business skills courses who have been through a redundancy process and are receiving a payout as a result.

Redundancy payments greater than £30,000 are taxed at source, so I'm often asked how you get the tax back if you've been taxed too much for that financial year.

I'm no tax advisor, but this link might help:
www.gov.uk/claim-tax-refund/youve-stopped-work

It's part of the new-look GOV.UK site, where HMRC has been migrating lots of useful guidance.

A few years ago I also ranted slightly about a related issue.

Posted on 04 February 2015

New VAT rules for e-selling in the EU

OK. So e-selling isn't really a word, but if you're selling digital stuff online to EU customers you need to be aware of some new rules. *Takes deep breath…*

Small businesses are being warned about new VAT changes from 1st Jan 2015, which mean sellers of apps, downloads and other e-services to customers in other EU countries will have to charge VAT at the rate within the customer's countries, not the UK rate.

The potential for confusion is enormous (giving rise to the hashtag #VATMESS), as VAT will have to be charged on EVERY sale, even where a UK business doesn't have to be VAT registered within the UK. This is likely to be a challenge for entrepreneurial sole traders in particular.

The VAT 'mini one stop shop' is supposed to help, avoiding the need to become VAT registered in every European country (!). But you'll still need a UK VAT registration number to use the one stop shop, even if you are below the UK VAT threshold.

It all seems very bureaucratic, but you can read more via these useful links, presuming you haven't lost the will to live:

Fair play to the Daily Telegraph, which has pointed to the challenges for small online businesses, and especially people who work for themselves but sell all around Europe using the internet. You'd have thought the tax people would want to make this simple and straight forward.

You can read the Telegraph's take on the latest twists here.

Posted on 15 December 2014

How HMRC chases tax

I'm often asked by worried freelance trainees if they're ever likely to be audited by the taxman (or woman). I haven't a clue, of course. But this article in the Telegraph is quite interesting. The mega-computer certainly sounds scary.

Are you next on the taxman's list >>

Posted on 18 September 2014

VAT help for digital services

Time to come clean: the way VAT works across borders is one of those things I can't quite get my head around.

I understand how VAT is irrelevant if you are working outside the EU, but how does VAT work when you sell to someone in another EU country? The single market is supposed to simplify things, but here it seems to make things more complicated.

Of course, as a trainer I should know everything. But whenever anyone asks about VAT across borders I look at the ceiling while pointing here.

But look! A glimmer of light for people who sell digital services (like apps and e-books) around Europe! HMRC have set up an online VAT Mini One Stop Shop. The aim is to stop you having to register for VAT in every country where someone buys something from you.

Read a short outline at Gov.uk >>>

Feeling strong? Here's the full Monty at HMRC.gov.uk >>>

Posted on 15 September 2014

Freelancing through an agency – rule changes

We've met quite a few media freelances recently who operate through an agency to get work and receive payment.

As the rules about employment status and taxation for agency workers changed this April (2014) I thought it might be useful to link to HMRC's guidance, neatly encapsulated (!) in 6 pages of PDF.

It's difficult to reduce this sort of thing to a one-liner, but in short if your work is unsupervised or you can send someone else along in your place you might be able to be self-employed and still get work through an agency. Otherwise it's more likely that the agency will have to treat you as an employee, and take off tax and national insurance before they pay you.

Posted on 12 September 2014

Simplified accounting for sole traders (webinars)

I'm often asked by trainees on our self-employment workshops where to get more information about keeping records. The short answer is 'the horse's mouth'.

HMRC have been developing a series of webinars aimed at new small businesses. I've taken part in some of the live webinars and they are very friendly and helpful. I find Twitter is the easiest place to keep on top of what's on offer.

There are two new simplified accounting systems which may be of interest if you're self-employed and have a turnover less than the VAT threshold (£83,000 per year as of April 2016).

The first system is called 'Cash Basis' and allows you to calculate income tax based on what you've received rather than what you've invoiced for.

The second change is the introduction of a couple of flat rates to cover using your home as your business base (or your business base as your home – eg when you run a small hotel and live there too).

The flat rate mileage system for using your own vehicle is unchanged.

All these approaches are optional. You can calculate all expenses the long way round and in detail if you prefer, and you can still base your end of year accounts on invoice dates rather than cash received if you like.

You can watch a pre-recorded video on YouTube about all this. Yes – HMRC has a YouTube channel. Who knew!

Posted on 02 June 2014

Changes to self-employed national insurance

One of the enduring mysteries of life in the UK why we have a tax that's still called national insurance, and why it's still so complicated. There are four different types, and two sub-categories for goodness sake – all with different rules.

When we cover NI in our finance for freelances or sole trader workshops, there's always bemusement in the room, even among highly intelligent people who've been paying it for years.

The reason it's complicated is because it's had numerous bits bolted on over the years as Chancellors have realised they can get more money out of us while saying they're not putting up income tax, even though NI is a kind of tax and it's usually based on income.

So NI has come to resemble a kind of steam punk traction engine with go-faster stripes – an interesting feat of engineering but not exactly fit for purpose.

But there's a small change coming that should benefit you if you're self-employed. It's a simplification in the way the Class 2 NI contribution is taken. At the moment Class 2 is calculated as a weekly amount (£2.75 in 2014-15), which you arrange to pay monthly or six monthly, separately from any other taxes.

The plan is to move Class 2 into the self-assessment process, i.e. put it in the tax return. This will remove the need for a separate process and may even help some self-employed people to remember to pay it. The timing was outlined in the 2014 Budget:

"These changes will have effect from April 2016, however customers will start to see the benefits after April 2015." (Nope. I'm not sure what that means either.)

Meanwhile another go-faster stripe is being added shortly in the form of a new temporary 'Class 3a' voluntary national insurance contribution. This could help people who have been self-employed (and others) to buy slightly more state pension if they are about to reach pensionable age. You can read about it on www.gov.uk.

Posted on 04 April 2014