Financial stuff
Please answer all the following questions. There is some maths involved – feel free to use your calculators, but show all your maths – i.e., break down the costs, don’t just present me with a total. I am happy to come and help you with the maths bits.
1)
What is income tax?
Income Tax is defined as the tax your legally forced to pay on your income though working, however not everyone has to pay tax on all types of income. Some of the things you have to pay tax on are; money people earn from employment, profit people make when their self-employed (freelancers would come under this section), often tax is paid through state benefits, nearly all pensions which include state pensions, retirement annuities, also company and personal pensions, interest on savings and pensioner bonds, retail income (however unless you’re a live-landlord and get £4,250 or less), job benefits, trust income and dividends from company shares. Or though tax is paid on another awful lot of essential things you don’t actually have to pay tax on things like income from tax-exempt accounts; individual savings accounts (ISAs) and National Savings Certificates. Some state benefits also allow you to not compulsory pay tax, a national lottery winning or premium bond also is another way to avoid tax paying and finally the first £4,250 of rent you get from a lodger in your home. Most people in the UK get a Personal Allowance of tax-free income where this is the amount of income you can have before you pay tax. Tax reliefs can also reduce the amount of tax you pay if you qualify for them.
Most people pay their income tax through a system called PAYE. Which is a system set up by your employer or pension provider to take Income Tax and National Insurance contributions before they pay your wages or pension, your tax code is important as it tells your employer exactly how much to deduct. Your tax code can take state benefits, so if you owe tax on them, for example state pension, its usually automatically taken from your other income. However if your financial affairs are slightly more difficult, for example you’re a self-employee or have an income at a higher price, you may actually have to pay Income Tax and National Insurance through Self Assessment, which means you’ll need to fill in a tax return every year. Income Tax is mostly usually taken from interest on savings and investments near enough automatically. If your untaxed income is actually over £2.500 or if you don’t have to pay tax through pension or wages you have to fill in a tax return and if its less then £2,500 you have to contact the Income Tax helpline.
The most common benefits which its legal to pay Income Tax on are, the State Pension, Jobseekers Allowance, Carers Allowance, Employment and Support Allowance, Incapacity Benefit, Bereavement Allowance, Industrial Death Benefit scheme (pensions paid), Widowed Parents Allowance, Widows pension. On the other hand the most popular state benefits which doesn’t legally force you to pay Income Tax on are, Housing Benefit, Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit, Disability Living Allowance, Child Benefits, Guardians Allowance, Attendance Allowance, Pension Credit, Winter Fuel Payments, over 75’s free TV licence and Maternity Allowance.
2)
What is National Insurance?
An overview of National Insurance is as follows; people have to pay National Insurance contributions to actually qualify to receive certain benefits (which includes pensions). Reasons why you pay National Insurance is if your 16 or over, earning above £153 a week, and if your self employed with a profit earning of over £5,885 a year. The exact amount you pay completely depends on how much you earn and whether your employed or self-employed. Some also pay voluntary contributions to make up for any holes in your National Insurance record, an example of this is if you have a gap between your record because you weren’t working you could boast up your state benefit through voluntary pay. Reasons people stop paying their National Insurance can be for several reasons some include, If you’re employed, you stop paying Class 1 National Insurance when you reach the State Pension age, your self-employed you stop paying Class 2 National Insurance when you reach State Pension age (or up to 4 months after this to pay off any contributions you owe) and Class 4 National Insurance from 6 April (start of the tax year) after you reach State Pension age.
Your National Insurance number is important as it makes 100% makes sure your national insurance tax and contributions are only recorded against your name. The number is made up from letters and numbers and will never change; you'd have the same number for life. People that would use your national insurance number in the future are HM Revenue and Customs (HMRC), the company your employed to, the Department for Work and Pensions (including the Jobcentre, Disability, Pension and Carers Service), the local council, Student Loan Company and also your Individual Savings Account if you open an ISA. Due to identity fraud its important for people to keep their National Insurance number extra safe and not give it about to people who don't actually need it. If your employed you pay Class 1 National Insurance contributions which the rates for most people are; 12% on your weekly earnings between £153 and £805, 2% on any weekly earnings over £805. You’ll pay less if you’re in a contracted out workplace pension or you’re a married woman or widow with a valid ‘certificate of election’. You have to pay National Insurance with your tax, the employer will take it from your wages before you get paid and your payslip will show your contributions. If you’re a director of a limited company, you may also be your own employee and pay National Insurance Class 1 through your PAYE payroll. Finally if your responsible for paying your own National Insurance, how much you pay depends on your profits.
3)
What does VAT stand for and how much is it set at?
VAT stands for Value Added Tax. It is a form of sales tax operated in the European Union (and various other countries). A VAT invoice is one that shows how much VAT has been charged as, unlike in the US, prices in Europe are often quoted inclusive of tax. Without a VAT invoice, you will not see how much VAT you have been charged. Additionally, companies (but typically not consumers) in Europe can often reclaim the VAT on a purchase from the relevant government. To be able to do this they need a VAT invoice in case the government ever audits them for the amounts they have reclaimed (hence, the invoice you are referring to being specific about it not being a VAT invoice). Note that such companies typically also hand over to the relevant government the VAT they have charged customers on goods and services. The rules are pretty complicated though and not worth going into here in depth unless you plan to go into business in a country that has a VAT regime. Sometimes, visitors to a European country can reclaim the VAT on purchases they made in that country (like reclaiming the GST on Canadian purchases when you visit Canada). The requirements for that will vary depending on the country. However, without a VAT receipt, it may be unlikely that you will be able to reclaim any VAT. Besides, depending on what you bought (some goods are exempt from VAT) and how you bought it (for example if you bought it from an EU country but had it shipped to the US), you may not have paid any VAT anyway. If you provide more details about what you bought and how, we could perhaps help you figure out if you can reclaim the VAT.
Reasons why you must register for VAT with HM Revenue and Customs (HMRC) is if your business’ VAT taxable turnover is more than £81,000. You can register voluntarily if it’s below this, unless everything you sell is exempt. After you've registered you get sent a VAT registration certificate which confirms your VAT number, when to submit your first VAT Return and payment
your ‘effective date of registration’ - this is the date you went over the threshold, or the date you asked to register if it was voluntary. The responsibilities from your VAT are to charge the right amount of VAT, pay any VAT due to HMRC, submit VAT Returns and keep VAT records and a VAT account. You have to register when you go over the threshold, or know that you will. The threshold is based on your VAT taxable turnover. Its compulsory to register if your VAT taxable turnover is more than £81,000 (the ‘threshold’) in a 12 month period, you receive goods in the UK from the EU worth more than £81,000, you expect to go over the threshold in a single 30 day period and if theirs no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days).
3) Calculating the cost of a job – making sure you don’t lose out.
You are doing a job which involves you travelling to Swindon, either by train or by car, staying overnight. You will have three meals while you are there – dinner, breakfast and lunch.
The job will cost you £80 in materials. You expect the job in total to take you three days, which includes time working at home to finish the work.
I) You want to make £100 a day net – ie after your tax and VAT has been taken out. Work out how much you are going to charge the company for the job.
I will charge the company a total of £360 for the three day job, charging £120 a day. I've decided to use this total as freelancers have to make profit when they go to different locations and do jobs (also in general they need to make profit as theres no point doing a job and not gaining anything from it.) Also I feel £120 a day is reasonable to charge considering it will be an all day task and charging around £10 an hour say the job is 12 hours a day isn't over charging and could be seen as slightly generous. £360 for three days is good money for a freelancer considering some people get near enough that amount for a whole month of working it also has to take in the considerations of the money spent actually travelling their, the hotel cost and also food whilst your up there.
- £120 a day
- 360 for three days
II) You need to tell the company how much you expect your expenses to be.
a)
Find a hotel in Swindon where you are going to stay. Don’t ‘take the mickey’ – the company will not be impressed with you using a five star hotel. Look up their rates – is breakfast included, even dinner? Obviously then you would not have to add an allowance for these meals.
I researched through Google search for hotels in Swindon which is at a reasonable price, one of the most cheapest hotels I found was a Premier Inn. The hotel was in Swindon West (M4, J16), which is in the center of Swindon so easy access around the area to complete the job task. The Premier Inn hotels start from just £35 a night which is extremely cheap on over night stay in any hotel, if I booked the hotel the night before though it would cost from £86 which isn't so reasonable which is why I would book the hotel stay at least a month or so advance so I could get it at the best possible price and also be prepared and organised. If the company booked a job for me to do in a months advance I'd book a Premier Inn now so I could get it as cheap as possible. It would cost £62 for a Premier Flex + Breakfast which includes check in from 2pm and check out before 12pm the night day, the room is an adult room with a single bed, breakfast is also included which consists of a full English breakfast or a Continental. The hotel is located in between Town centre and the countryside which is perfect for a quiet getaway to relax and get work done but it also is around great transport links like buses, trains, taxi's ect which makes it easier to get around. Premier Inn also has meal deals which allow people who are staying for a night or two to get cheap meals with their rooms rather then having to search around the unfamiliar area. You can get a any 2 course dinner + drink and also unlimited breakfast at the Premier Inn restaurant (if it isn't already added to the hotel deal for £22.99, which is a reasonable price for hotel meal.
b)
If you decide to travel by car, calculate the copst of petrol – using google maps should give you how much it will cost in petrol.
I'd travel to Swindon by car as it would potentially be cheaper and faster through petrol rather then having to get several public transport like buses and trains. I'd start the journey from my house location which is in Clanfield (just outside Portsmouth near Petersfield). The drive would take 1 hour 32 minutes and use 73.4 miles. Id start the journey in Clanfield then take E Meon Rd, Droxford Rd, Hayden Ln, Wheely Down Rd, and Petersfield Rd/A31 to Winchester By-Pass/A34 in Winchester (18.1 mi / 34 min). Afterwards I'd follow A34 and M4 to Great Western Way/A3102 in Wiltshire then take exit 16 from M4 (54.8 mi / 56 min), then continue on Great Western Way/A3102 to the destination (0.5 mi / 2 min). At the roundabout, take the 4th exit onto Great Western Way/A3102
(0.3 mi), then turn left (302 ft), jeep right (371 ft). At the roundabout, take the 2nd exit and the destination Premier Inn Swindon West Hotel will be on the right (397 ft). I found these directions on Google Maps. The petrol would cost £14.23 for the 73.4 mile journey which is reasonable as you'd more then £14.23 an hour which is near enough how long the journey would take. I worked out the petrol cost on website Journey Price Calculator.
c)
OR using the train – using the train planner will show you how much the fare would be. You will be travelling at peak times.
d)
Make allowances for any meals that are not included in your hotel rate. Again, you are not fine dining – how much does a good meal at Nando’s cost?
If the hotel meal isn't great or available at the right time a Nando's meal would be the best next option, for a chicken fillet burger with two regular sides it would only cost £8.95 and with a refillable drink it would £2.45 so all together costing £11.40 which is reasonable and actually less expensive then the meal deal with breakfast in Premier Inn.
e)
Add all these costs together – your travel, hotel, and meals, and the £80 in materials.
All together the hotel which is costing £62 (that includes breakfast aswell), the £14.23 for petrol and the Nando's meal which costs £11.40 (I've decided not to go for the Premier Inn meal deal as breakfast is already included in the hotel and all together its cheaper to dine out. So including all of this and the £80 in materials the price all together comes to £167.63
How much is this?
£167.63
Premier Inn hotel: £62
Petrol money: £14.23
Nando's meal: £11,40
Material money: £80
III) Now you have to work out your tax.
Tax at the basic rate is 20%, so how much is that on the total for your job? Find out and make a note of it, then add that to your total. This final amount is how much you will charge for the job.
The cost for the Premier Inn hotel together with petrol money, food spending and also material money comes to a total of £167.63. Adding that together with the money I'm charging for the three day job which I charged £360, comes to a total of £527.63. So the tax with cost £105.36 as after I added up the price of the money spent on the trip as well as the amount I'm charging and taking away 20% which gives you the answer of basic tax rate. So finally I will after working out the tax I would charge £105.36.
How much are you putting into a savings account to cover your tax?
I will put a total of £30 into a savings account as it will leave me enough money to gain a profit from completing the three day job and it also wouldn't effect the money I have left over as it's not enough to make a significant impact on the money I have left over. It also will add up in the long run, each month if I do three or four, three day trip jobs it would add up to around £90 or £120 worth of savings from just one month. In a year that would make up £1440 a year in savings which at the time taking £30 for each job wouldn't effect me at the time but really would help and make a difference at the end of year having an extra thousand pounds in the bank.
