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FINANCE
Failing to plan – planning to fail
Self-employment can be very rewarding – as long as you prepare for the things which will now be your responsibility. If you are considering a move from the (relatively) safe world of employment into self-employment you need to be prepared, especially from a financial perspective. When you were a wage slave you had, at least, a certainty of some income at a fixed time every week or month – in self-employment this situation, in general, is seldom the case.
When you were employed, you received a net income from which tax and National Insurance (NI) had already been deducted by your employer. When self-employed YOU are solely responsible for your own tax and National Insurance contributions, and payment of those can only come out of one thing - net profit generated by your business.
It is important to distinguish between income and net profit. Income is what your client will give you for supplying your service – profit is what you have left after you have deducted any expenses that you have incurred to supply your services. As a basic example: –
Charge to client
£50
Costs i.e Net fuel
£20 Profit £30
Tax at 20%
£6 Class Net
4 N.I Personal Income
£2.40 £21.60
In the example above out of the £50 charged for a session you would have to pay for any expenses, for example fuel which could cost you £20. Net profit, therefore, is actually only £30, on which you will pay a minimum of 20% (the current basic rate of tax, in this case £6). If you make a profit you also have to pay Class 4 NI at 8%, which is another £2.40, making a total tax and National Insurance contribution of £8.40 deducted
THE AUTHOR
Jamie Crampton qualified as a Chartered Management Accountant in 1995 and in 2008 set up Accounting 4 Fitness, dealing primarily with clients in the fitness industry. In addition
to this he advises personal training students on Premier training courses on self employment, and also does freelance work with accounting students at the University of Bedfordshire.
If number crunching’s not your style don’t worry, financial expert Jamie Crampton’s here to help
from your £30.
After deduction of expenses, income tax and NI, from your original £50 charge you are left with £21.60. For any self- employed individual it is essential that you ensure that this, your net personal income, is sufficient for you to meet all of your regular monthly commitments, such as living expenses, food, clothing etc.
So remember if you are planning on being self-employed, it’s essential to make at least a basic business plan beforehand to help you identify times when your income may be insufficient to meet your commitments, and therefore plan where you might need funds from other areas, such as loans and grants.
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Whether you are an established or newly formed business, or thinking about starting, we can help you. We provide advice on Accounting,
Self Assessment, Income & Corporation Tax, VAT, PAYE and many other financial services at extremely competitive rates, which can be paid monthly. We are experts in all aspects of Leisure & Fitness industry accounting and can easily arrange personal consultancy sessions that fit in with your schedule, anytime and anywhere in the UK.
For more information call Jamie Crampton, ACMA (T) 01234 267860 (M) 07830 225612 (E) Jamie@a4f.co.uk.
Accounting 4 Fitness
12 Boxgrove Priory, Bedford MK41 0TQ. Registered with the Chartered Institute of Management Accountants as a Member in Practice.
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