Self employment

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NOTE this article is out of date!

Please read the following memo from YWAM England Accountant:

Dear YWAMer,

If you are registered as self employed in the UK you will be aware  
that we used to have a blanket agreement with the Inland Revenue (IR)  
for the treatment of income for tax purposes. (Please see attached  
file 'old agreement').

Unfortunately on the 28th July 2005  the Inland Revenue revoked this  
agreement with YWAM so it no longer applies (Please see attached  
file 'IR Correspondence').  Since I took over from Richard Payne I  
have been trying to find a way to establish a new agreement with the  
IR.  Our auditors have been working on this for us for over a year  
but they have reached the conclusion that the IR will not allow a new  
blanket agreement. (Please see attached file 'Letter from Auditors')

The IR have changed their policy since 1996 when the old agreement  
was signed.  During the interim they have fought and lost a costly  
court case involving a similar blanket agreement with a high wealth  
individual.  Therefore they have not allowed any new agreements to be  
signed and they have revoked all earlier agreements.

The IR now recommends that all YWAMers negotiate the treatment of  
their tax on an individual basis with their local tax office.   
Although this will involve a bit more work for us all (and for the IR  
as they have 300 identical conversations around the country instead  
of just 1 central conversation) the Auditors are hopeful that the  
actual end position will not differ too much.  I suspect that points  
2a) and b) from the old agreement, regarding direct gifts from  
friends and family, are the areas which may need clarification.

  I would recommend that you take the following action:

When you come to work on you Self Assessment Tax Return inform either  
you local tax office or the accountant who completes the form for you  
that the old agreement has now expired

You or your Accountant ask your local tax office whether you can  
continue to be treated under the terms of the old agreement because  
it remains a fair and reasonable framework

You or your Accountant complete the form in line with the treatment  
agreed in point 2.

You may want to propose to the IR that your income should be taxed as  
a Missionary. (Please see attached file 'Missionary Treatment' 
REF:http://www.hmrc.gov.uk/manuals/bimmanual/BIM62101.htm)

I would also point out to the IR that the old agreement only came to  
an end because it was a blanket agreement not because the terms  
therein were unreasonable.

I am sorry to have to bring these changes to your attention.

If you or your Accountants have any questions on this please do get  
in touch (just make sure you don't hit 'reply all').

Yours in Christ

Steve Sharp

National Accountant
YWAM England & Wales
01582 463210

Referenced file: http://www.hmrc.gov.uk/manuals/bimmanual/BIM62101.htm

Could someone help with clean up - there are some good principles here that need retaining... --Kev-The-Hasty 09:14, 1 August 2007 (BST)

YWAM England staff are all classed as self-employed

This is due to a special agreement YWAM England has with the UK tax office. YWAMers are free to accept this agreement or otherwise they can feel free to negotiate there own (not recommended)

Disclaimer:- this is not an exhaustive document and in all circumstances local advice should be sought from your YWAM base &/or financial advisor.

Who is Liable to Pay Income Tax?

  1. A UK subject
  2. A Non UK subject who lives in the UK for more than 183 days of a tax year (6th - 5th April)

What is Taxable Income?

The general rule is that any income received by virtue of your vocation is taxable, irrespective of who gives it to you. Much of this is a grey area, but these guidelines might be useful.

Taxable Income:

  1. Gifts from churches to YWAMer's, even thought you haven't carried out any work for them.
  2. Gifts from churches to YWAM to cover staff fees of a YWAMer.
  3. Gifts from trusts (i.e. Stewardship, CAF, Muller etc.)
  4. Honoraria received in return for performing a duty
  5. Reimbursements from YWAM for travel etc.
  6. Gifts from friends, (50% taxable)
  7. Bank Interest, Dividends, Rental income etc.

Non-Taxable Income:

  1. Gifts from family
  2. Gifts from friends (50% non-taxable)
  3. Birtday, Christmas, Wedding and similar occasion gifts.

Some Possible Suggestions:

  • Children to have their own bank account and supporters to give to them.
  • Non UK subjects remit only non-taxable income
  • Inland Revenue Letter - £5,000 exemption

Business Expenses

Can I make any deductions from my taxable income to reduce my tax liability?

Yes, you can deduct any expenses which are incurred wholly and exclusively for the purpose of your work. In practice if an expense is incurred partly for business and partly fro private purposes, then the Inland Revenue will allow you to claim a % of the expense as a deduction.

Some Examples

  • Travel expenses (not to and from permanent place of work)
  • Outreach expenses
  • Telephone, stationary, photocopy, stamps
  • Research material
  • Support raising costs
  • Office at home - you can deduct a % of the costs fro rent, light, heat and water
  • Wife's wages (these must be actually paid)
  • Conference fees
  • Further training schools/courses
  • Accountant's fees
  • Professional subscriptions
  • Any business assets - under £200
    • If a computer or other asset costs more than £200 you can deduct 25% of the cost per year on a reducing balance basis. This deduction requires some special calculations and a schedule is available in the Inland Revenue personal tax forms.
  • Vehicle expenses
    • You can deduct a percentage of your personal vehicle operating costs if you use your vehicle for business. These costs would include petrol, insurance, road tax and repairs. The amount you can deduct is based on the proportionate amount of time you use your car for business or personal use. If you drive 10,000 miles per year and 6,000 is related to business then you can deduct 60% of your car expenses per year.
    • The actual cost of the vehicle can also be deducted from your taxable income on the same 25% basis as for other assets, subject to a maximum of £3000 p.a.

NOTE

  • Entertainment expenses are not valid deductions - you can not reclaim them. This includes taking someone out for a coffee and discipleship chat. You are more advised to set aside some money specifically (like a tithe) that you can use as you will not be able to claim this under personal tax --Kev-The-Hasty 11:15, 18 June 2007 (BST)

Allowances

Each person is classified as a resident for tax purposes is entitled to a Personal Allowance. This reduces your taxable income and the amount of tax that you have to pay. Ask your local tax office for the current tax allowance for the current year.

National Insurance

  1. Self-employed people pay class 2 contributions, which is around £2 per week.
  2. If Net Taxable Income is under £4,095 p.a. then you may elect not to pay it.
  3. if Net Taxable Income is above £4,615 p.a. then an additional 8% is payable on this excess (note this doc produced 2003/2004 so please check figures)
  4. Voluntary contributions can be paid at £6.95 per week. (although check with tax office)

Benefits to Pay N.I.

  1. Retirement pension
  2. Basic Widows benefit
  3. Death grant
  4. Basic sickness benefit
  5. Basic Invalidity benefit
  6. Basic Maternity benefit

BUT no unemployment benefit.

When is Tax Payable

Think this needs updating

When Must a Tax Return Be Submitted By?

Normally you have two dates you must submit your return by:-

  • 30th September [tab]If you want the Inland Revenue to calculate your tax, or;
  • 31st January [tab]If you or your accountant want to calculate your liability.

Penalties and Interest

There is a fixed penalty for not submitting the Tax Return on time, of £100. There are also interest payments to be made for late or the incorrect payment of tax. YOU HAVE BEEN WARNED

What do I Need to do Next?

  • Decide whether to use an accountant or to do the work yourself
  • Notify your local tax office that you are going self employed
  • Decide on a date to start as Self-Employed. You must register within 3 months.
  • Keep records and receipts. These need to be kept for 7 years.
  • Keep copies for all correspondence with Inland Revenue
  • Each year submit a Tax Return

Tax Efficient Giving

This topic interests more people than just UK people so see this page on Tax Efficient Giving

Enables your supporters (tax payers) are able to support you and you will receive the tax back from the income given to you on the gift.

Stewardship Services

  • http://www.stewardship.org.uk
  • Conditions:
    • Donor must be a UK tax payer
    • Recipient must be a full time Christian worker form ore than 1 year
    • Recipient can be of any nationality but must have a UK bank account
    • Family can not give to you in this way
    • Higher rate tax payers can claim an extra 17% tax back.

NOTES: All money your supporters give to an organisation like Stewardship services remains the organisations money - they can only express a wish that their gift gets to you. It is a moral obligation - there is utterly no legal obligation to pass on a gift to you...

Useful Resources

Whether you use an account book to keep your accounts or computer software. The best simple is that which is easy to keep and maintain. There are many useful software packages available to help.

Software

Apple Mac Users the most simple software designed for the self-employed worker: