Freelancer’s Question:
I 'm about to register for self-assessment & NICs
after receiving a couple of cheques from stock image websites that I've been
uploading work to over the past couple of years.
So, these earnings will probably go into my bank account after I register as self-employed.
I assume that’s OK?
In other words, will there be a problem with this income being earned before registering as a sole trader?
I'm guessing that the date the money goes into the bank is what really matters,
but I just want to see what an accounting expert would recommend.
Expert’s Answer: You mentioned the earnings will be banked after you’re registered, but that they relate to work carried out previously. If it’s all within the current tax year (06/04/2011 - 05/04/2012), then you can register with HM Revenue & Customs now and declare the income on your 2011/12 tax return.Apply online, or give them a call, but ensure you have your NI number to hand.Any tax due for 2011/12 will be payable by 31/01/2013, with payments on account if you have a liability over £2,000.
If the income was earned in a previous tax year, then you’re past the deadline for registration, and HMRC may issue a penalty.The latest you can register is October 5th after the end of the tax year for which you need a return. If you have tax to pay in the 2010-11 tax year, you should have told HMRC by October 5th 2011. If this is the case, let them know when you register for the current year. If the income doesn’t result in any liability, HMRC shouldn’t impose any penalty.
The self-employed also have to pay Class 2 NI, at a rate of £2.50 a week. Depending on expected level of income, you could apply for a small earnings exemption certificate - provided your self-employed income stays below £5,315, you have no Class 2 liability.
We help our clients be tax efficient, thereby reducing the risk of penalties on late payments and overdue returns. I recommend you seek guidance from a specialist contractor/freelancer accountant, who will advise you of your options.
The expert was Clare Rickman, of InTouch Contractor Accounting, a tax and accountancy specialist for freelance contractors and the self-employed.
Jan 27, 2012
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