6 Things to Think About When You’re Going Self-Employed

There’s probably more to think about when setting up as self-employed than you realise. Depending on the type of work you do, it could take some time to make a profit and you might need financial support when you’re first starting out. Your entitlement to benefits and state pension could be affected if you aren’t making enough National Insurance contributions.

We’ve put this blog post together to make you aware of the things you might want to think about — and that we can support you with — as you move into self-employment.

1. Are you actually self-employed?

Working out your employment status isn’t always a simple matter of looking at what your contract says. Some employers may claim you are self-employed to avoid paying national insurance or giving you things you have a right to, such as holiday pay. If you’re wrongly classed as self-employed, you may find you’re not paying enough tax and national insurance, which can later impact your State Pension and entitlement to other benefits. You may also be missing out on money your employer owes you.

We’ve written a separate post about working out your employment status that you can read here.

If you’re not sure whether you’re self-employed, call Burnley & Pendle Citizens Advice.

2. Do you need to register for self-assessment?

If you’re a sole trader you must register for self-assessment if your income is over £1,000 for the year. You will also need to register if you make more £2,500 from property you own. Those in a partnership must register regardless of income. You can register to manage your tax digitally, through an HMRC tax account. Burnley & Pendle Citizens Advice are currently offering digital support as part of the Making Tax Digital project. Call the office on 01282 616 750 and ask to speak to an HMRC adviser for help getting started with managing your tax digitally.

You can learn more about who needs to register by clicking here.

3. Can you get help through Universal Credit?

You can claim Universal Credit while self-employed. This can be useful when you are first starting out and working hard to increase your income. Your work coach should advise you on the additional support available to help you start your business. After one year on Universal Credit you will be impacted by the minimum income floor, although this rule has been suspended until August 2021. This means if your self-employed income is below a certain level, the DWP will assume you have an income equivalent to the national minimum wage for the purposes of calculating your benefit entitlement.

4. Will your Working Tax Credits be impacted?

To qualify for Working Tax Credit while self-employed you’ll need to show your work is commercial, organised, and regular. You must also show that you aim to make a profit.

Working Tax Credit payments are calculated from estimates based on your earnings from the previous tax year. If your income is much lower than the estimate, you could be due some of it back. If it is higher, you might end up having to pay more money to HMRC at the end of the year. If you’re aware that your income will be a lot higher or lower than the estimate, you can contact HMRC to let them know, so they can change their figures.

5. Are you making the right National Insurance contributions?

To be credited with NI contributions that count towards State Pension and contributions-based benefits, you need to make Class 2 contributions. You’ll pay Class 2 contributions if your profits are £6,515 or more a year. You might consider making voluntary contributions, if your income is below this amount, to protect your State Pension or to make sure you can claim Employment and Support Allowance (ESA) if you need time off work when you’re sick.

6. Can you claim Marriage Allowance?

It may take some time for your business to fully take-off. In the meantime your income may be reduced, which means you’ll be paying less tax. If:

· You’re married or in a civil partnership, and

· Your income is below £12,570, and

· Your partner is a basic rate tax payer

You can transfer up to £1,260 of your Personal Allowance to your partner, reducing their tax liability for the year by up to £252. You can also make backdated claims for Marriage Allowance to the start of the of the 2017/18 tax year, if you qualified in those years.

How can Burnley & Pendle Citizens Advice help?

Burnley and Pendle Citizens Advice’s HMRC advisers are available to help you with tax and self-employment issues. Our digital support advisers can help you access and understand Making Tax Digital and what it means for you.

We can help you:

· Setup and access an HMRC digital tax account

· Apply to the Self-Employed Income Support Scheme

· Submit self-assessment tax returns

· Prepare for Making Tax Digital

· Check whether you can claim any state benefits to support your income

For help with tax issues, including digital support, call our office on 01282 616 750 and ask to speak to an HMRC adviser.

For help starting a new application for Universal Credit, call our Help to Claim service on 0800 144 8 444. If you have an existing UC claim and have received your first payment, call 0800 144 8848 for our Adviceline.

Disclaimer: This information was correct at time of publishing on 11 May 2021 and is provided as a guide only. It is not a recommendation to take a specific action and we suggest you speak to an adviser if you have any doubt about how the law applies to you.

We are an independent charity providing free, impartial and confidential advice to people in Burnley and Pendle.