Self employed and employed? Some things to consider…

More and more people are doing self-employed work on the side of paid employment. What are some of the things you need to consider?

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Are you considering going self-employed or taking on self-employed work on the side of paid employment? Self-employment can be a way to boost your income while also giving you greater flexibility over how, when and where you do your work. There are, however, several things to consider, from the impact on maternity pay to taxation.

Maternity pay

Statutory Maternity Pay is for employees, but there is a maternity pay option for those who are self-employed.  Self-employed people can claim Maternity Allowance if they have paid Class 2 National Insurance for a minimum of 13 of the 66 weeks leading up to the birth of the child. These don’t have to be consecutive. They must also have been self-employed for a minimum of 26 weeks during the 66 weeks before the baby’s due date.

Maternity Allowance is less than SMP. MA is paid at the statutory rate for 39 weeks, whereas SMP is paid at 90% of average weekly salary for six weeks followed by 33 weeks at the statutory rate [currently £184.03 a week]. Also, if you do more than one job, you cannot claim two lots of Maternity Allowance and if you do a job where you qualify for SMP alongside your self-employed work you will only be eligible for SMP. However, if you do get SMP you can still do self-employed work during your maternity leave without losing your right to SMP.

While claiming MA you cannot do more than 10 Keeping in Touch days during your maternity leave or you will lose MA.

Taxation

If you are doing self-employed work on the side of employed work you may have to fill in a Self Assessment tax return form annually. That means you need to keep a record of your total income and then work out profit minus expenses. You’ll be taxed on profits and will also have to pay Class 4 National Insurance contributions. Through filling out the Self-Assessment form and including allowable expenses HMRC will calculate how much tax you owe. You must send a tax return if, in the last tax year [April to April] you were self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on) or were a partner in a business partnership.

Read more on filling out a Self Assessment form here.

Pensions

Your pension contributions may be affected if you become self-employed. Employers are now required to have a workplace pension and to top up employees’ contributions to their pension under auto-enrolment. That means that while employees contribute 4% of their qualifying earnings, the Government adds 1% tax relief and the employer tops this up with 3% – so in effect the employee’s net contribution is doubled. The current annual income threshold for triggering auto-enrolment payments is £10K.

If you reduce your hours in paid employment to work self employed on the side and your earnings then fall under the income threshold this will affect your pension. You can, however, choose to top up your contributions at a later date.

As a self-employed person, you can also set up a personal pension to save for your retirement. You can add regular contributions or make ad hoc payments into your self-employed pension and your pension provider will claim tax relief and add it to your pension pot.



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