What you need to tell HMRC

What UK Virtual Assistants need to know about Tax and National Insurance

When you decide that you’re going to become a Virtual Assistant and take over the Universe, one of the many, many things you’ll need to do is tell the Government you’re no longer working for The Man but for many men and women instead. The information below is based on current UK tax laws so make sure you’re up to date with what you need to do if you live outside of the UK.

When do I contact HMRC?

When you start earning income from  freelance work even if you’re still engaged by your employer.

How do I register as a sole trader?

If you start working for yourself in the UK you need to let HMRC know your situation has changed so they can update their records. You do this by going online and completing this form. which registers you for sole trader status and National Insurance (NI) contributions. HMRC then send you your Unique taxpayer reference (UTR) within six weeks.

What’s the Unique Tax Reference for?

Your UTR is used to submit your personal tax return online. Once you get your UTR you can then sign up to register for HMRC online services which mean you can do your tax return online instead of completing a paper version, as well as seeing all the other useful info they have on their site for you.

* It can take a few weeks to get your UTR so don’t do this right at the end of January! Register as early as you can so you give yourself plenty of time to get your No and do your return before the January 31st online tax return deadline.

Current tax rates and allowances

How much Income Tax you pay in each tax year depends on:

  • How much of your income is above your Personal Allowance
  • How much of this falls within each tax band

Some income is tax-free.

The current Personal Allowance  is £11,500 which is the amount of income you don’t have to pay tax on (this will rise to £11,850 in April 2018).

Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance and it’s smaller if your income is over £100,000.

Income Tax rates and bands

These are the tax rates you pay in each band if you have a standard Personal Allowance of £11,000.

Read more about tax rates and allowances on the HMRC website.

Income bands are different in Scotland and you can find those bands here.

National Insurance contributions

In addition to registering with HMRC for tax, you usually pay two types of National Insurance if you’re self-employed:

  • Class 2 if your profits are £6,025 or more a year
  • Class 4 if your profits are £8,164 or more a year

Class 2 is £2.85 per week and Class 4 is 9% on profits between £8,164 and £45,000 and 2% on profits over £45,000.

Some self-employed people don’t pay National Insurance through Self Assessment, but they may want to pay voluntary contributions. These people are:

  • Examiners, moderators, invigilators and people who set exam questions.
  • People who run businesses involving land or property.
  • Ministers of religion who don’t receive a salary or stipend.
  • People who make investments for themselves or others – but not as a business and without getting a fee or commission.

These people probably are not you however!

National Insurance is charged in one go when you do your self assessment tax return rather than taken monthly. Read more about National Insurance on the HMRC website.

What financial records should I keep?

It is a legal requirement in the UK to keep business records as evidence of what you’ve earned and what you’ve spent each tax year. HMRC could ask to look into your tax returns or claims and if they do they’ll want to look at your records of course. You must keep:

  • Cash books
  • Invoices
  • Mileage records
  • Bank statements
  • Receipts for business purchases
  • Your P60s if you’re also employed

How should I keep them?

You should keep your records either on paper or on your computer. For electronic records you must:

  • Capture both sides of a document
  • Save all information in a readable format
  • Keep a back-up

What happens if I lose an expense receipt?

If you don’t have a receipt for a cash expense then just make a brief note of the amount you spent, when you bought, and what it was for.

How long do I need to keep financial records for?

You need to keep business records for at least five years after the 31st January submission deadline of the relevant tax year. So best to keep them for six I say!

How do I complete my tax return?

The UK financial year runs from 6th April to the 5th April and HMRC will contact you to request you submit your return form by the end of October by post or by the end of January online.

There’s a £100 fine if you submit your tax return up to 3 months after the 31st Jan deadline and more if it’s later than that.

You always submit information for the year before – so in October 2017 or January 2018 you are submitting information from April 6th 2016 until April 5th 2017.

You have to pay ahead

You may not be aware of this, but you will usually also have to pay a percentage of the next year’s tax and National Insurance in advance in addition to the tax you’re paying for the last tax year.

HMRC take one payment by the end of January and another one in July. This is called ‘Payments on Account’ and you can read the exact specifics here.

Summary

UK tax laws are a complete ball-ache and things like personal allowances and NI rates often change each financial year. However,  you really do need to make sure you keep on top of this stuff because HMRC are serious folk and they do not take ignorance as an excuse.

You should always check with HMRC if there’s anything you’re not sure about – or pay an accountant to make sure you’re compliant. HMRC have an online chat service and loads of training videos to help you.

Where can I find out more?

  • You can get more advice by calling Newly Self-Employed on 08459 154515 and by going to the Becoming Self Employed section of the HMRC website.
  • You can also sign up for free HMRC e-learning, webinars, emails and videos here.
  • Here’s the HMRC page outlining the business records they want you to keep.
  • Here’s a HMRC article outlining what you can claim under business expenses.
  • You can read my blog post on how I keep my own financial records here.

8 Comments

Gemma Lloyd

I am looking to become a VA and have been researching how I can set myself up. I am currently living in France, as we moved here 18months ago with my husband’s work and will be returning to the UK in the future. Can I set up a UK business when I am not living in the UK? And do you think this would limit my success as I will find it hard to meet with clients face to face and be out of the country ?

Reply
Joanne Munro

Hi Gemma, I don’t actually know the answer to the first part f that question but HMRC or one of the VA’s on one of the VA LinkedIn groups might be able to help. With regards to meeting clients whilst out of the country, that is what Skype or Google Hangouts is great for.

I have a client who lives in France who I do events with and he does all of his work with Skype and Hangouts. He lives in the middle of nowhere and says his Internet connection is far quicker and stronger there than here. He does come to the UK now and again to meet clients and just puts the trip on his expenses – the great thing about France is that they’re an hour ahead, so when you come to the UK you arrive pretty much the same time you left!

I have clients I’ve never met and the whole point of being virtual is so you can work from anywhere in the world. I often work from a holiday destination and my clients have no idea where I am – nor do they care as long as I get their work done on time. If you have a reliable way of communicating then you can be wherever you like! x

Reply
Kate Baldwin

Hi, I have found your website incredibly helpful. Thank you. I have worked across Europe and recently moved back from working in Singapore. I am now based in Cape Town and want to work as a Virtual EA. There is a company that is based in the UK but operates out of Cape Town (far cheaper which can of course be passed on to clients, plus only 1 hour time difference from the UK). However I’m unsure as to the tax/legal situation of being on a UK contract, but working out of a different country. Any suggestions or guidance? Thank you so much! Kate

Reply
Kate Baldwin

P.s. Just to clarify, the “company” is a UK Virtual PA company, so they have the client base etc, and there is “virtual” office here where most of the PA’s work from in order to share tips and talk things through if needed. So it is a company, rather than setting up my own. It’s not totally home based, which for me is better. Thank you!

Reply
Joanne Munro

Hi Kate, I’ll be honest in that I have absolutely NO idea! I don’t want to give you false information so I would recommend asking on the VA Handbookers Facebook group as well as checking with HMRC (or equivalent) etc.

I think if you’re working Digital Nomad style then you pay tax in whichever country you’re registered in but I would always check anything legal with a financial and/or legal professional to cover yourself.

There are a few VAs who live and work abroad in the Facebook group and I actually did a VA interview with one who travels pretty much constantly so she might be a good person to ask too. x

https://www.thevahandbook.com/michelle-rodgaard-jessens-va-story/

Reply
Isa

Hello!
I would like to approach the world of VA and become one.
At the beginning I want also to keep my pwrt time employment, you know, just to not have too much pressure.
Do you think it’s possible to have both employed and self-employed works? And if so, how can I work out taxes and NI?

Thank you for your help.
Isa

Reply
Joanne Munro

Hi Isa, if you’re in the UK, you need to tell HMRC as soon as you start earning any money. You will do an annual online Self Assessment (you need to get your Unique Tax Reference first) and when it comes to the bit about earnings you complete how much you made as a Freelancer as well as your employment status. You can find details online by doing a Google search.

Although I know a little about this (I completed my first self assessment this way) I am not a legal expert and you should always take expert advice in all financial matters. My advice is to call HMRC and ask them what you need to do. They have an online chat service here. x

Reply

Leave a Reply

Your email address will not be published. Required fields are marked *