Tax Question

NickyW

I am studying for my Tax units at the moment and also helping someone else with their accounts and was hoping that someone can help me!!
If someone is self employed doing freelance instructing but also has a job where they are on the payroll and therefore paying NI contributions and PAYE - how are they taxed and what returns do they have to fill in?
Any replies would be greatly appreciated!
Nicky

Monsoon

In the nicest way, if you're asking this question then your friend might need more help than you can give.

However:

They need to have registered as self employed with HMRC
They will then be issued with a notice to complete a tax return
They have to complete the employment pages (using the details on the P60 from their job)
Also the self employment pages with details from their freelancing
Also the main form, where any relevant sections (e.g. interest, dividends, benefits) need completing
Any other sections of the tax return that are relevant.

Register now to do it online, much easier than on paper.

NickyW

I fully agree. I am just entering the entries on the system for her and the accountant will do the rest!
Rather than just enter it I wanted to fully understand what the 'tax' procedure was.
Thanks for replying
Nicky

Monsoon

Jolly good
Everyone has to start somewhere and helping people like this (especially with the backup of an accountant) is a really good way to start getting to know how these things are done.

Good luck in your studies!

NickyW

Thanks for this! I have got 1 more question and would be so grateful if anyone could answer it!!!!
She gets self billing invoices with her gross pay. I enter these on QB as invoices and when receive payment enter it accordingly. On a couple of them there is a deduction which simply says NIC - I would presume that this is employee NIC. My question is how would I show these entries on the system - the system needs to see the gross pay and then the deduction.
Think I must be getting old, can't get my head round it!
Any replies greatly appreciated!!

Monsoon

There are some funnies which mean the worker is self employed, but the engager has to make NI deductions. I think actors are one of them. I don't know a lot about it, but just know it exists.

The double entry would be....

Original Invoice:
CR Sales
DR Debtors

Payment (via Customer > Receive Payments):
DR Bank
CR Debtors

There will be a balance due on the invoice equal to the NI.

I think the easiest way to show this in QB, as you have to clear the invoice through the Receive Payments dialog in order to keep the customer ledger straight is to do this:

Post another receive payments to the value of the NI into the bank.
Then post a bank payment the same date, to Drawings. Mark both entries "CONTRA".
The bank will remain balanced and the double entry will be happy.

Hope that helps.

Note it's Drawings, as NI is not a business expense and it doesn't need to be shown in the accounts.

It's worth making a note elsewhere that NI has been deducted and making this info available to the accountant.

NickyW

That is of so much help - thank you!
The person is a model -so that would make sense why the agency is taking NI contributions.
Thanks
Nicky

Monsoon

You're very welcome.
Yes, her being a model makes perfect sense then