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I am in full time employment, but I also do some work for another company who pay me by cheque, as far as I know I should be paying income tax on these cheques, is there a legel (loophole) that will avoid (legally) paying income tax on these cheques?
Cheers,
yes, immediately forward all cheques to me and write them off as a gift
totally tax free
Tax Evasion by definition is illgeal. Tax avoidance isn't though.
If they pay by cheque and you don't pay PAYE.... then your basically a contracter - setup a limited company and you won't pay much tax on your earnings. Companys will do all the work for you for a weekly fee.
There's no reason why the second company shouldn't include you in their payroll (unless your contract of employment with company one expressly forbids this) and pay you under PAYE. This would be by far the easiest option from your point of view.
If you set up a company, get a company bank account, find a company secretary, set up a payroll PAYE scheme, account for your own National Insurance throughout the year and file a tax return at the end then IF you manage to avoid the IR35/employment regs you can pay yourself partly in dividends, on which you save ~14% National Insurance.
Otherwise call your tax office with the amounts involved and see what they say - if your second income is small then they will not require a return, but you will want a letter from them confirming this.
Yup - its about avoiding, not evading. Don't call them cheques, call them checks. And don't accept them, except them.Quote:
Originally Posted by Gr44
Really, its about how clever you are with words.
Ya get me?
errrrrrrrr...... noQuote:
Originally Posted by Stewart
Hang on, hang on, hang on.
** Wades in with actual tax knowledge, qualifications, job etc.... **
I presume the company are treating you as a contractor, hence payment by cheque and no deduction of PAYE/NI. They will do this as it's cheaper (no need to pay Employer's NI at 12.8% of your gross salary), no vicarious liability, no need for insurance for you, and less admin is needed. I also presume you are in the UK, else my advice is mostly useless, mostly.
On the above basis, you are personally responsible for payment of tax and NI. You need to register for Class 2 NI (about £2.20 per week, payable quarterly) ASAP, and you will need to file a tax return each year to calculate and pay any tax and Class 4 NI due.
In this case, to not file a return and pay the tax/NI due is tax evasion, illegal, and leaves you liable to large penalties and possibly jail time.
However, and it's a big however, depending on the actual facts of your work with the company, it may be that HM Revenue & Customs would judge you to be employed, rather than a self-employed contractor. On this basis, the company would need to withhold PAYE and NI from your remuneration.
Now, there has been a well-publicised case recently concluded (Demibourne v HMRC), in which the company (Demibourne Ltd) did not withhold PAYE and the individual paid their own taxes. The company was subsequently found to be an employer of the individual and was forced to pay the PAYE due on the individual's behalf (as well as whatever penalties were assessed) - importantly, not deducting it from the 'employee'.
With both the individual and the company having paid the full tax liability on the income, the individual would then be able to file a tax return to claim a refund for the doubly-paid tax, and therefore has effectively earned the income tax-free! Now I'm not suggesting anything, but....
Anyway, if you are going to be legitimately self-employed, it's not necessarily the right thing to do to set up a company, as there is a lot more admin involved, but it can often work out cheaper in terms of tax/NI. I suspect in your case it's not worth the hassle.
Surely its the people giving u the cheques that have a responsibility to have already taxed u on that cheque. So i owuld jsut ignore it and enjoy the extra £££ as imo its their responsibility
Did you read any of what I wrote? :rolleyes:Quote:
Originally Posted by Merlin4458
Lol. Why let facts get in the way of a load of ill informed opinions :mrgreen:Quote:
Originally Posted by schmunk
how much poppy are we talking here? Is it just a couple of quid for making the tea or approaching (at least) minimum wage?
yeh, still wot id do though
I agree entirely with schmunk, though I would expand on one point and add another.
The expanded point - whether it's worth setting up a company very much depends on your circumstances, and the extent of the income you're talking about. Setting up a company has some onerous implications, not least of which is compliance with the fairly extensive legislation you, as a director, will have to comply with .... and the criminal offences you may commit if you don't understand your obligations and duties.
You also either have to pay someone to do the admin (like the company secretary functions, such as keeping statutory records up to date, filing the annual Companies House returns, etc) or spend the time and effort (and pay the nominal filing fees yourself). You're also then putting yourself in the position of having to maintain company accounts, and consideration the implications of Corporation Tax, and the employer side of PAYE/NI returns and payments. Even if you manage to work it to avoid these, there's admin that goes along with that.
If you're talking about fairly substantial income, it may be worth it. But if you're talking about a bit of top-up income, it probably isn't worth it.
It probably is, however, worth considering that if you're paid on an irregular basis, and not as part of a payroll, then that aspect of your income classes you as self-employed. You MUST notify the Revenue within a specified period (3 months IIRC) that you have this kind of income, and you will then be expected to keep records of incomes and expenses relating to that self-employment, and to fill in not only a tax return, but the self-employed section of it.
But note the "and expenses" part. As a self-employed person, there will be a long list of costs that you may, to one extent or another, be able to claim against that income. Exactly what you can claim will again depend on your circumstances. It might include the running costs of your car (or part thereof), it might include part of your domestic heating and power bills, it might include an allowance for working clothes (but that's not entirely straight-forward), it might include the cost of a new computer or camera (I get both :)), and so on. It might include the cost of computer magazines, professional body subscriptions or even foreign travel). Again, I get all three of those. But they DO need to be legitimate business-related costs.
In answer to your original question, poindextermatic, there is no legal way to avoid paying any tax due, but exactly what tax is due will depend on the income you have from this work, and what legitimate deductions you may be able to make against it, and they MIGHT be substantial.
As for the extra point ...
..... if you work for a company on a regular basis, then whether your status is "employed" or self-employed/contractor is a complex one. It can be subject to intense debate and argument, between yourself, your "employer" and the Revenue, and some such arguments have been known to involve several such cases, including multi-year battles that involve four court cases and end up in the House of Lords. In other words, it's a contentious area.
There are a number of factors that will determine whether you SHOULD have been classed as an employee and the company accounting for you as such, and it is NOT a decision that is entirely in either your hands or the company's. There are a number of things that can be done to push things in the direction of not being employed, and the most obvious is to have a contract that says you are not. But .... just doing that if far from enough. Exactly what the contract says will be critical, but even if you get the contract wording just right will not help you if that wording does not reflect the actual working relationship.
Essentially, there's a whole raft of factors called "badges of trade". If your relationship with this company meets enough of those badges, you're self-employed. If it doesn't, you're employed and at that point, the company should have been deducting PAYE/NI etc, whether they actually were or not. And if they weren't, the Revenue can charge them back taxes, penalties, fines, interest etc for as far back as you've been working for them, up to a maximum of 6 years.
So, badges of trade.
Do you work regular hours?
Is there any duty on the employer to offer you further work?
Is there any duty on you to accept any given job?
Who defines those hours?
Do you get the benefits of an employee :-
....... do you get paid if sick, or only if working
....... do you get holiday pay or entitlement
....... do you get company pension benefits? etc
Do you provide your own tools/equipment or does the company provide it?
Who is responsible for correcting any mistakes you make, and if it's you, do you get paid for it or do it in your own time and at your own cost?
Are your working hours directly controlled by someone else, or do you determine how you do the work?
Are you obliged to maintain training standards and/or certification, and if so, who pays for it?
That's not an exhaustive list by any means, but let me clarify one or two of those.
Suppose you do something wrong at work, make a mistake. Suppose you're, oh .... a carpenter building a chair. If you goof, in who's time do you redo the work? If you ruin materials, do you pay for the replacement or does the company? A critical and fundamental part of "trade" is the assumption of risk. If the company bears the risk, it suggests you're not in trade, and are therefore an employee.
If you provide your own tools, have to fund your own training, and if you bear the cost and responsibility for how you do the work required and correcting mistakes, then you're probably self-employed. For example, if the company say "there's a pile of materials, build three chairs, and we'll pay you £x", that suggests trade. If it takes you three hours, you get £x, but if it takes you 10 hours, you still get £x. In other words, if you're good at what you do, you benefit from that skill.
If, on the other hand, you're told "file those 100 invoices, then I'll give you another job", you're more likely to be employed.
If you're told "we want you to work three evenings a week, 4 hours a week", and it's open-ended, it suggests employment. If you're told "we need you for 8 hours on Wednesday, and 4 hours on Friday", and you can decide whether to accept or not, and if there's no obligation on them beyond ringing and asking you that as and when needed, it points towards trade, not employment.
There is no set formula as to how many of these "badges" you need in order to be classed as self-employed or employed. It is very much a case of how the overall picture is viewed, and it'll likely be different for each individual.
One thing is certain, though. If you just keep quiet and don't tell the Revenue about those cheques, it'll get VERY expensive if they ever find out. For a start, you'll get hit for late payment charges periodically for not filing the necessary paperwork, fines and interest charges and it can accumulate to a VERY large sum .... perhaps more than you actually earned, because of those fines and penalties, and interest. And what's more, dealing with the Revenue rather reverse the standard position of them having to prove you owe the money. If they catch up with you not sending in the necessary paperwork (like tax returns) they will simply estimate what they think you owe, including the penalties and interest, and bill you. And if you can't provide the necessary evidence to support why you don't owe it, that bill is legally enforceable, up to and including court bailiffs taking your possessions. Generally speaking, it's fairly rare for the Revenue to take it that far, or to need to take it that far, but if you suddenly get a take "assessment" for £5000 ..... or £50,000 ( :eek:), arrive on your doormat, it can ruin your whole day.
In other words, do not muck about with this decision. Remember that you MUST notify them of this type of income with the mandatory period (as I said, 3 months, IIRC). I strongly advocate not delaying. But a sensible course of action, EVEN if you're past that three months, is to approach the revenue and apprise them of the situation. At the very least, it shows goodwill on your part and, contrary to popular opinion, they tend to be lenient where they detect genuine mistakes, but they can also be punitive if they think you're trying to evade your responsibilities deliberately. Sooner or later, you'll end up paying tax. It's FAR better to get ahead of the game and be open up-front, as soon as you realise.
I wouldn't.Quote:
Originally Posted by Merlin4458
Have you seen what can happen to people that do this, and get caught? It can put you under an awful lot of stress, and cost you a fortune, both in tax and penalties, but also in accountancy costs to sort it out. In my accountancy days, I have seen many people try this and come badly unstuck. In my view, it really, really isn't worth the grief it can cause.
And with a paper trail of cheques, it's all to easy to get caught. All it needs is for a random Revenue audit of the company to pick up those payments and poindextermatic has some explaining to do. Even if you stopped this job today, poindextermatic, you'll have that possibility hanging over you for years to come. Seriously, don't ignore it.
Thanks a lot for the replies guys (the sensible ones anyway... :rolleyes:) it's very much appreciated.
I'll expand:
I work full time, regular 9-5 sort of hours, 39 hrs at least a week, this employer sorts out all my tax etc... amounting to about 23% of what I earn and then a little off my student loan. As far as they are concerned I do not have additional outside work, and I want it to stay that way - don't think my boss would be too happy, but there's nothing in my contract that says I can't do other work outside the company (although I do use some of their software to do it).
The other work I do is for a smaller company doing the same kind of work, they basically e-mail me the work, I do it, and send it back to them. Couple of weeks later I get a cheque from this place and stick it in my current account or my cash ISA. So I guess I am a contracted worker to them... (although I have signed no contract whatsoever) there is no liability from them or me, I can work as little or as much as I like all from home.
On average I would say I was getting say £250/month at irregular intervals.
So is this extra income worth taxing or what? Is it classed as self employment? Will I end up getting taxed via self assesment for another 23%?
Cheers guys, please keep the response coming. :bowdown:
Edit: Just did a little reading... can I apply for a 'Small Earnings Exception - Certtificate' if the extra income is below a certain amount??
Yes you have to be taxed on that - ~£2500 of untaxed income is the maximum amount that HMRC will consider not requiring a return for.
You should get yourself a proper contract of services however you treat this income. Since it doesn't sound as though you have any costs, you might be best doing it as a sole trader which I think requires you to pay self-employed NICs (class 2 and class 4?) as you go, and then send in a cheque for your income tax along with your return following the end of the year. I think....
Full company route is overblown for the amounts involved TBH.
Saracen can probably answer this better, but I would go and get some profesional advice about this s soon as possible. £3000 a year is significant enough that could get you into a lot of trouble and be costly if you don't.
As for using your employers software to do work for someone else, especially if they are in he smae line of business, could be cause for disiplinary action if you were found out.
And as it's your employers software are you also using your employers computer? Again that might not go down well.
Oh, just saw your edit. Yes apply for the Small Earnings Exception but note that this is exception from class 2 NICs only, saving you just the £2 or whatever it is a week.
If this was your only source of income you might choose to keep you class 2 NICs continuous anyway. But you will be paying them on your main job, so may as well go for the exception.
After two years, you'll have saved enough for a new mid-range graphics card...:mrgreen:
Then wouldn't it make more sense for the OP to reduce his/her income to below that level, rather than pay 23% on £3000?Quote:
Originally Posted by JPreston
No....you still have a tax liability on everything, but HMRC generally in practice would not require a return from someone receiving such a low amount from untaxed sources because of the admin overhead and low amount of recovered tax. They could just amend the OP's tax code to so that the tax due (is more or less) taken from his main employment through PAYE. But this would be entirely at HMRC's discretion.Quote:
Originally Posted by mroz
Best thing I reckon, is sole trader route....just call the tax office and tell them what the situation is, there will be a NI affect through the year and a tax bill at the end of the year along with the return.
Ah, okay, understood - apart from the 'discretion'... If they don't amend the tax code, how do they get their tax?Quote:
Originally Posted by JPreston
They can just ask for a tax return regardless of little tax is expected :)
Well, I managed to get some advise from a Chartered Accountant, he said....
''Either the individual is an employee and should be paid via PAYE or they are self-employed and should be paid gross. If they are self-employed they will need to notify HMRC and complete a self-assessment return in order to pay the tax.
If it is small scale casual earnings then they may be able to advise HMRC of the amount and get it collected by reducing their tax code.''
So self assessment form by the sound of it...