[es.c]

This is slightly confusing..
I run a freelance business of Kickboxing at the age of 17, so I must pay tax, but I'm not employed by anyone, despite being part of a franchise. Do I use that PAYE form thing, and where can I sort all this out? The last thing I want is to be on watchdogs rogue traders o.o

[threeportdrift]

(Original post by es.c)
This is slightly confusing..
I run a freelance business of Kickboxing at the age of 17, so I must pay tax, but I'm not employed by anyone, despite being part of a franchise. Do I use that PAYE form thing, and where can I sort all this out? The last thing I want is to be on watchdogs rogue traders o.o

Presumably if it is a franchise you are self-employed? Go to the HMRC website an read what they say, it's a bit more complicated if you are self-employed. Maybe you aren't though, I've no idea how a kick-boxing franchise works!

Owing tax depends on your income, not your age.

[Runninground]

If you are self employed you pay income tax and class 2 (possibly 4) national insurance. Income tax and class 4 NI tax is worked out when you fill out a self assessment form on the HMRC website. Class 2 is something like £2.50 (or £2.40) per week, which can be paid 6 monthly.

If you are self employed, don't worry about PAYE unless YOU are employing someone.

You may have to set up a limited company, which will also require corporation tax, but this option is a little more complicated (and expensive when you have to have an accountant)

Also, VAT is only needed when you earn over £77k. You still need to pay it, just you don't need to charge it.

[Clip]

Self Employed 101 (over simplified in some places):

Sole Trader: Just you. You pay individual tax on self-assessment NOT PAYE. You won't have to submit accounts until Jan of the year after you start trading. You can call yourself anything you like, Bob's Butchers, Cyberdine Systems etc. It's very easy to start - you just do it, just make sure you keep a detailed book of what you are spending and what you are receiving, with all your receipts. I would strongly recommend that you retain a professional accountant to do your return. It might cost a few hundred pounds, but it will take a load off your mind.

Partnership: You and x number of others calling yourself something. You're all in it together. (Different from a LLP - but don't worry about that.) The drawback of sole trading and Partnership is that you have unlimited personal liability. If your business owes someone £3000 - that means that you (or the partners jointly) owe someone £3000.

Limited Company: Is a separate business entity. Sounds freaky, but you will be the director and sole shareholder. Again, I would take professional advice on setting this up. There is a much greater administrative burden, but there are two reasons that people do this - (1) liability is generally limited, and it is the company that owes money not you personally (although this doesn't always include banks or anyone asking for a personal guarantee) you are generally limited to losing only your investment. (2) There can be advantageous methods of paying oneself - i.e. through dividends. People talk about this all the time like it's free money. It's not. Basically, you will save yourself Employer and Employee National Insurance on dividends - but the business must have profits in order to do this.

VAT: Very often misunderstood. You MUST register for VAT if your turnover is greater than the threshold (currently £77,000) - there used to be a profit threshold, but it's only turnover now. You can voluntarily register for VAT at any level.

VAT is a tax that you collect on behalf of the government. You charge 20% on top of things, and at the end of the VAT period (usually 3 months) you add up all the VAT that you have paid and subtract it from the VAT that you have collected. Then, you pay the difference to HMRC.

You start to get an ex-VAT mindset (i.e. I can buy things from the shops at 20% off, effectively), but don't forget that ultimately it will make very little difference to your profits. Let's say you are not claiming back the VAT on your petrol/computers/whatever - you mark it off against your profits and pay less SA tax.

Most importantly - although nowadays HMRC is one entity, there has always been a distinction between the taxman and the vatman. The Vatman will not wait. You can put off the tax man, get a little fine here or there; the Vatman does not wait. Your Vat must be in usually every quarter.

[Runninground]

A Sole Trader isn't necessarily just you- you can be self employed but also employ people (although it can be complicated). As a small business you should be looking to cut costs, so an accountant isn't important. It may take a while, but getting your head around the simple tax terms (annual investment allowance, capital allowance, writing down allowance, etc) will save you money.