Self Employed...How exactly does it work?

[Tally18]

I'm currently in receipt of ESA (WRAG) after having to leave my job a few months back due to medical reasons. I'm doing a OU degree and volunteering but would really like to start earning some money again. As my health is pretty up and down I figure something I'm able to do at home would be ideal. I'm very artistic and a friend has offered to give me her kiln and pottery supplies...I did Ceramics in college years ago so I know what I'm doing.

 

The whole "self employed" thing really scares me though...I would have no idea what I'm doing and would be scared about not earning enough to pay the bills. I'm aware that if I work over a certain number of hours per week I can claim WTC, does this apply to CT and HB too? This would obviously affect my ESA?

 

How is WTC worked out if I have no idea how much money I would be earning...it would all depend on sales wouldn't it? So some weeks I might earn nothing at all, whilst others could be hundreds. It really would be luck of the draw. I am aware of a couple of shops that would be interested in stocking some of my stuff, I know the owners...but this would be me getting paid when they sell the item, plus they'd take commission.

 

The idea is very appealing...getting away from DWP would be great for a start and working at my own pace would really help health wise. I'm just worried about how they'd work out how much rent/CT and WTC I'd have to pay/receive if I don't know how much I'd earn. Do you have to "earn" a certain amount per week to be eligible or is it based on hours?

 

How does the self employed tax stuff work? I'm aware I can earn up to 10,000 per year without having to pay tax, but I still have to file them, right? Receipts for everything...If I'm selling online, what info would the tax people need? Invoice printouts?

 

How does the "money earnt" thing work...Say for example I sell £5000 worth of stuff in 12 months...but I spend £1000 on new materials and £500 went on shipping/packaging...that would mean I only earnt £3500 or do they count what your expenses/out goings are as income? Stuff like firing the kiln would be around £4 a go, that would be expenses? Like I said...no idea how it works.

 

Any thoughts or advice would be appreciated. Thank you.

Edited September 17, 2013 by Tally18

[renegadeimp]

Could always ask. Im not sure myself, but hopefully someone here is more knowledgeable.

 

If youa re serious about getting started, i think they even offer a small grant to get you up and running. Also check out the uk small business forum. That place is amazing for info on any business, or anything to do with businesses.

[Mr.P]

How does the "money earnt" thing work...Say for example I sell £5000 worth of stuff in 12 months...but I spend £1000 on new materials and £500 went on shipping/packaging...that would mean I only earnt £3500 or do they count what your expenses/out goings are as income? Stuff like firing the kiln would be around £4 a go, that would be expenses? Like I said...no idea how it works.

 

Reducing things to the basics:

 

You make an item and then sell it to a customer for £100. It costs you £10 in materials, £6 for postage and packaging - This means you have made £84 in profit. You then add up how much you spent on stationary, telephone calls, energy costs (for heating the office space), accountants fees, bank charges, and anything else you spent in the day to day running of the business (example, £100 per week). This figure is then deducted from your £84 profit...

 

For capital expenditure such as a new computer, printer, or kiln you get an annual allowance - This was something like 25% for the next three years (say £1000, so first year would be £250 or £4.80 per week) - This is then included in the deductions and reduces your (nominal) profit. If you only sold one item in a week for £100, your bottom line profit would be 100-10-6-100-4.80 = -£20.80

On a good week where you sold say 25 items, you'd make (25* (100-10-6))-100-4.80 = £1996.20

 

At the end of the year, you would then add up your bottom line profit and pay tax on this (after allowing for personal allowance), not forgetting you would also have to pay national insurance contributions.

 

Before entering into any self employment venture, you really do need to get in contact with a local enterprise agency that can offer good advice - Your local council should be able to point you in the right direction - Advice will cover things like what startup grants are available, basic accounting methods, business planning, taxation (and how to minimise your liability), and a whole host of other subjects.

 

being a self employed artisan is a tough business and it could take a long time to make any real money at it especially if it is your only source of income.

[Tally18]

Can't imagine I'd run up £100 a week in expenses...I get free telephone calls (part of house package), energy costs would just be the cost to fire the kiln, which would be between £3-£4 per firing. The shop that would sell my stuff is in walking distance, so no expenses there, although they'd want 30% commission, so profit would be minus commission/online selling fees?...Can't imagine I'd use an accountant? Is that standard?

 

So, say for example over a month I earnt Week 1:£70 Week 2: £0 Week 3: £500 Week 4: 300. That would be £870. Materials cost £20, Postage cost £60. That would leave £800 profit. Say I fired the kiln 4 times that month...I'd take off the £16 energy expenses, leaving £784 profit. I read that if you're "disabled" you can work 16 hours minimum, is that ESA or DLA? So if I earnt £784 in profit in one month...how would I know that before hand to tell HMRC for WTC calculations? What if the month after I earnt say £300 profit and the month after that I earnt £1600...I wouldn't have a clue what the figure would be in order to calculate WTC, CT and HB. It all seems really confusing!

 

So if I earnt say £15000 in one year...I'd pay tax on the whole £15000 or on the £5000 (minus £10000 allowance) and the tax would all be payable in one lump sum once a year? So I'd obviously have to put that aside in a bank account... Is NI paid yearly too or monthly?

 

If I don't earn enough for WTC how does it work with ESA? I stay on that but lose anything I earn?

 

Advise from professionals sounds like a good idea!

[Mr.P]

Using an accountant can be advisable if your tax affairs are complex, but for for many people, it is just another drain on funds - I was self employed for a number of years and did use an accountant for a while, then realised she was costing me much more than if I did it myself - With the aid of a computer and a half decent speadsheet (which is all tax deductible), it isn't difficult to produce a bottom line profit/loss statement for HMRC, just remember to include everything including clothing while out marketing your goods.

 

If you can show a profit of £15000 per year, you'd only pay tax on the £5000 - For WTC, CT, and HB, you need to talk to HMRC and the council - A word of warning: If you are running a business from home, the council may want to charge business rates on part or all of your home, and there may be restrictions (is the property rented ?).

 

Others will be along soon that can offer advice on ESA and claiming other benefits.

[Hacked_Off]

Because your on benefits I think you would be entitled to enterprise allowance which is £65 per week for three months, then £33. Also a 1k start up loan with minimal interest, Mine is £180 ish over three years. The no jobs centre will put you with a "mentor" from a different company, in my experience though they were rubbish.

[Tally18]

Yeah the property is rented...never thought of that!

[ericsbrother]

You can claim various costs against your tax liability and you will still be eligible for HB and CTB as long as your net earings are less than bout £16k. As for the address being registered as being a business premises as long as you dont have an area of the property that is solely for business use only and you dont have customers calling to the house then there is no business rates liability. Someone else's kiln plonked in the corner isnt using the property for business purposes any more than a plumber doing his accounts on the computer is.

[jadeybags]

I'm self employed & claiming WTC/HB & CT Benefit. They are doing my head in that the moment though, upping them lowering my housing benefit, that's more to do with teens staying in education though.

If you are single, no dependents, you need to work at least 30 hours a week for WTC (used to be that anyway)

I pay National insurance by direct debit monthly, is about 12 quid. And that's right, as long as you work in the place you live (my kitchen is my work area) it's all good.

My house contents insurance had to be told though. It doesn't always add any extra cost on either.