New to self employment? August is the time when many GP registrars leave the comparative safety of PAYE and become self employed, so here’s a summary of what you need to do to keep the taxman happy (and a reminder for those of you who are experienced locums).
(This article was first published in the NASGP Newsletter August September edition 2011)
Set up as self employed:
- Notify HMRC of the start of self employment
- Set up Class 2 National Insurance contributions
- Consider if Class 4 National Insurance contributions will need to be deferred (you may need to seek professional help with this)
HMRC are threatening to visit a large number of small and very small businesses to check that records are up to date and accurate. Failure to keep records can result in substantial fines (up to £3,000 per year of assessment) so these visits are an easy way for a cash-strapped government to collect penalties from unsuspecting businesses.
You should keep:
- Copies of invoices issued in respect of work done
- Receipts for expenses incurred
- Mileage log
- Bank statements showing locum income received and expenses paid
- Paying in books and cheque stubs
- Credit card statements where used for the business
- Copies of pensions paperwork (forms Locum A and B)
- Copies of payslips, P45s and P60s (and possibly P11d – return of benefits) in respect of employment work.
You do not need to have formal bookkeeping software – but you may find it easier. If you are good with spreadsheets, then a spreadsheet cash book can be sufficient. Certainly summarising your income and expenses properly will keep professional fees to a minimum as well as showing the Revenue that you are keeping good records.
Saving for tax:
If you start your locum work in August 2011, the first tax you will need to pay over will be in January 2013 – so it is vital that you put away money for tax and national insurance as you go, rather than try to find a large sum at the last minute.
If you have an outstanding student loan, you will make payments for this via your self assessment too – so be aware that you’ll need to factor that into your calculations.
If you are not sure what you should be saving, let your accountant know what you expect to earn and they can estimate it for you.
Timing and penalties:
Penalties for late returns have now increased. It is no longer sufficient to say that you have paid all your tax on time. If a return has been issued, you must submit it unless you have a reasonable excuse. (Make sure you have set up mail forwarding, when you move house to make sure you receive any official documents sent to you)
If you submit your return late there is an automatic penalty of £100, followed by daily £10 penalties, followed by £300 (or 5% of total tax liability if greater – and that is total liability, not the net balance due) – plus surcharges and interest on late paid tax.
As you can see, it can build up to big figures quite quickly so make sure your return is submitted promptly. For 2011 returns – paper ones (rarely used now) must be submitted by 31 October 2011; on-line returns must be filed by 31 January 2012.
Remember if you use an accountant, they will need your information in good time before the filing date to give them time to complete the work for you.
As I write this it’s gale force winds and heavy rain – a perfect time to stay in and get your records up to date! Have a good summer.
Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact her at email@example.com.