Putting earnings back into business

[physicsgraduate]

Hi I've been working hard for the past year trying to set myself up in business as a sole trader, and finally I think I might have got my foot in the door with a very important client that could secure me maybe even a minimum liveable income for potentially life.

 

I have some questions.

 

From the perspective of the benefits I currently am in receipt of, ie. working tax credits and housing benefit, can I take some of the money from what I'm paid and put it back into my company?

 

What do I keep aside for the tax thieves, 20%? Or should I save 30% to cover myself?

 

Is there any where on the internet or elsewhere i can find out a rough idea of how much money I should negotiate?

 

I don't want to over or under, just a little over the going rate and not too much that I turn them away. Do these things tend to work like they do on the telly?

[ericsbrother]

Trying to get my head around the question, do you mean at point 1 does your gross takings (business income) affect your benefits and will it be different if you reinvest money into the business?

Well, when you do your accounts you will have i&e colums on your accounts and any business expenditure is deducted from the income to give you a net income figure. deductable things will include rent, utilities, travel, cost of materials andmachinery. Now, for tax credits purposes you can deduct all expenditure from the gross income and that is the figure you use as YOUR income. For HB, it is a little different. They do not take into account things like capital purchases and otherwise claimable motoring expenses so a painter and decorator cannot claim for purchase of a vehicle and running expenses of that nor depreciation on capital assets.

Assuming you are working from home and arent claiming for vehicle expenses then your net income will be the figure you will use without too much complication.

For tax purposes you will get a tax allowance as everyone does of £10 000 for this tax year. Another allowable deduction for taxable income purposes is any student loan payments you make so pay off £1000 and you caneffectively have an income of £11 000 before you start to pay tax. The National Insurance thresholds are different and there are 2 classes of NI contributions that you will have to take into consideration, class 2 and class 4.

Estimate your net income and keep aside 30% of anything over £10k for tax and NI

As for how much to charge for your time and effort, you have to decide what it is worth. How long each week will you spend on this contract? will you have to travel to meeting or site visits? What are your establishment costs (things you have to pay regardless of income such as rent/rates etc). How in demand is the skill you are offering? none of thsi can be answered here so you will need to make the calculations yourself. Whatever you do though, dont undersell yourself as that is a common and costly mistake.

[physicsgraduate]

That's why I haven't mentioned money yet. If i oversell myself too much as well they might go somewhere else. I'll have to look into that.

 

So are you effectively saying if my gross income in £13k and I decide to use £4k of that to pay of my student loan, then it would effectively be me sort of only paying £1k and redirecting the other £3k from money which would otherwise be taken by the Inland Revenue, so in theory I can sort of fund my own education 20 years in the past from my own taxes that I pay now?

 

What about Open University, can I channel money into that?

 

What am I like, I'll be investing in off shore bank accounts next. I don't even know how much they'll pay me, I think a liveable wage for 1-2 days work per week could be attainable here, and then I'm free again.

[physicsgraduate]

Couple more questions.

 

Do I have to pay for my own dental treatment if I'm on WTC?

 

If I decide to go and live abroad or even travel and take my work with me, which may be possible, how does tax work then?

[ericsbrother]

If you want free dental treatment you apply to the dwp for a certifiacte to give you free prescriptions dentistry etc, not automatic.

Working abroad? you will have a different tax liability and allowance depending upon where you are. you may end up paying tax in both countries if you are residing there. You will still be domiciled in the UK though so cant avoid having to fill out tax return.

[vickytheviking]

hello, I am a sole trader and have a little hair salon (purchase of goodwill) that I purchased in march. My sister took out a loan on my behalf to make the purchase.

I am currently on some housing benefit and also have put every penny into the business as I had no capital to buy any tools or equipment. The said loan repayments they would not be able to use in calculation of my housing in benefit. They also wrote to me on 18th November and have told me they have revisited my claim from April and now they were not going to allow 'expenses for new electrical, tools and equipment and furniture as regulations state that set up costs for a business are not allowable when caculation (yes this is how they spelt it!) income for housing benefit'. So I would be very careful before you start putting all your spare takings into your business or you may end up in the same trouble as me now with an overpayment!

[ericsbrother]

you can claim for interest on the loan though

[physicsgraduate]

I was preparing myself to pay these at the end of January, however I just looked at the back of the form and apparently I can apply for a small earning exemption if my earnings are below £5885 for the year, for which I am somewhat relieved.

 

Do my earnings include working tax credits?

 

Secondly, I have been working with a client for several months on the basis that I will be getting paid soon on an on-going basis. It looks as though I will start getting paid in about a month, however I don't know how much yet. I would expect it will still be under £5885 for the year including tax credits if they count.

 

My main question is, if I put most of the money back into my business (which I expect to do) can I then discount that money as earnings?

[ericsbrother]

1.For NI purposes no.

2.How do you mean put the money back into the business? If you actually spend it on business items (plant, computer, rent etc) then the amount spent is deducted from the gross earnings and what is left over is YOUR earnings/profit and that attracts NI and tax..

[physicsgraduate]

Ok so pretty much all my earnings will be working tax credits and maybe a fraction more and so I can apply for this exception then? Flaming well hope so as I've been putting all my eggs in this basket in the hope that it comes to something, and it's taken longer than I though but should be worth it in the end.

[caro]

I don't believe you'd need to pay NI on tax credits.

[physicsgraduate]

Thank you it's been tough but I never thought I'd make it. I'm literally buzzing, even though I don't yet have a contract. I might even get something I wrote published, me who got a C in english at school. This is a great relief to know that I don't really owe them anything. I'll show them bahookies down the job centre haha

[caro]

Hope it works out for you. Sounds very exciting.

[ericsbrother]

Yes, apply for exemption. It will last at least a year and maybe more. They send you a certificate with applicable dates on it.

[physicsgraduate]

How long does it take? I can apply on line. Hope there's not too many questions.

[ericsbrother]

phone them up and you will get one in the post. They ask you what your income is, expected turnover and profit for this year and take it from there. Never looked for it online so dont know if they have a form.