Employed and Self-employed

[scorpio_besal]

I am employed and recently I registered for self employment (sole trader).

Since I have two forms of earning, one through employment and the other through self employment as sole trader,
At the time of tier 1 extension, regarding my self employment income as sole trader, do I need to show GROSS income or the NET income.

[AccountantMatthew]

For employment income - gross salary (prior to tax/NI being deducted)

For self employment profits - net profit (but with sole trader accounts net profit is turnover/sales less expenses but not tax .... so look on it as net profit before tax)

[scorpio_besal]

Thanks again, Matthew..

If I were to say, as per my self employment income, say my earning (payment made by clients) is 20000GBP and I have not had any expenses, so 20000 is the amount which I would need to show to HMRC as my NET PROFIT , that's before TAX while I would be applying for my visa extension from my self employment as sole trader along with my GROSS earning from employment.

[AccountantMatthew]

Having no expenses as a result of running a business would be quite a skill (!) but your logic is correct there.

For UKBA you would be declaring the £20k as self employment income and then adding on what the employed gross salary was.

For HMRC if you have profits for your period of £20k then that would be ultimately what is entered onto your self assessment return assuming that there are no other adjustments to be made. You would then pay tax based on that £20k plus all of your other income sources.

I've simplified the tax side a little to save making everybody go to sleep but that's the basic logic.

[scorpio_besal]

Matthew, you are superb.. the way you explain things... it makes things crystal clear.... THANK YOU SO MUCH.... we all should call you GURU

[AccountantMatthew]

That's very kind of you scorpio_besal - thank you very much and all the best with your application.

[Sushil-ACCA]

Thanks again, Matthew..

If I were to say, as per my self employment income, say my earning (payment made by clients) is 20000GBP and I have not had any expenses, so 20000 is the amount which I would need to show to HMRC as my NET PROFIT , that's before TAX while I would be applying for my visa extension from my self employment as sole trader along with my GROSS earning from employment.

IT IS IMPOssible to digest that some one is not spending any money for earning £20000,

we make even call to do business need to be considered other wise a/cs will be window dressed , it is not earning skill

[scorpio_besal]

Sushil, I am a designer, People contact me and they buy my designs, more over I work from my home through internet, to the max if I would say my costs are literally negligible , just on phone calls to my clients, and on internet , which would be 20GBP a month and for a year it would be about 240GBP.

So I dont consider that a part of my expenses, even though I can include it while preparing my tax document.

Hope you now know, how I keep my expenses low...

[scorpio_besal]

Matthew, Just one question which came to my mind now, that is,

I am due for renewal in Mar 2013, I would be showing my earning through employment and self employment from April 2012 to Feb 2013 at the time of application, Could you please tell me if the following document would be enough as a proof for earning:

Earning though Employment:

1) Salary slips from April 2012 to Feb 2013
2) Bank Statement showing the salary credit for that duration

AND


Earning though Self Employment:

1) UTR Letter from HMRC
2) National Insurance Payment for the duration
3) Profit and Loss account for the duration (April 2012-Feb 2013)
4) Invoice which I have made for my clients for the duration (April 2012-Feb 2013)
5) Business Bank Statements for the duration (April 2012-Feb 2013)
6) Contract which I have made for my clients for the services which I have given for the duration (April 2012-Feb 2013)

Some one said that I may also need,

A) Invoice Explanation letter from my accountant, is that same as profit and loss account

B) A letter from the accountant which would include the earning from both employment and self employment , BUT I DONT KNOW WHAT WOULD YOU CALL THAT LETTER.


I would appreciate if you would help me on this one.

[Manka10]

Sushil, I am a designer, People contact me and they buy my designs, more over I work from my home through internet, to the max if I would say my costs are literally negligible , just on phone calls to my clients, and on internet , which would be 20GBP a month and for a year it would be about 240GBP.

So I dont consider that a part of my expenses, even though I can include it while preparing my tax document.

Hope you now know, how I keep my expenses low...

dude, its hard to imagine for anyone that you didnt have any operational expenses in earning a sizeable amount thru self employment

if the actual amount you earned thru self employment is high enough, it will be scrutinised in detail

UKBA have access to taxes you pay so if you declare the whole amount as income without any expenses & then put in expenses so you dont have to pay as much tax, dont think you can get away

play a straight bat & stay away from trouble

[scorpio_besal]

Bloody ***, why are people so negative in thinking about the way I keep my expenses, and some people dont believe that we can keep our expenses low and NOW SOME ARE COMING UP WITH THIS TAX FRAUD THINGS...

FOR GOD SAKE.. WHY DO YOU THINK .. AND WHAT MAKES YOU THINK THAT I AM GOING TO DO SUCH THINGS... AND WHY ARE WE DISCUSSING ABOUT THIS TAX FRAUD THING AT THE FIRST PLACE...

GET SOME LIFE...!!!

[Sushil-ACCA]

Bloody ***, why are people so negative in thinking about the way I keep my expenses, and some people dont believe that we can keep our expenses low and NOW SOME ARE COMING UP WITH THIS TAX FRAUD THINGS...

FOR GOD SAKE.. WHY DO YOU THINK .. AND WHAT MAKES YOU THINK THAT I AM GOING TO DO SUCH THINGS... AND WHY ARE WE DISCUSSING ABOUT THIS TAX FRAUD THING AT THE FIRST PLACE...

GET SOME LIFE...!!!

Please mind yr language , it is discussion , dont take personal , and last all we r giving our views.

[shahjee11]

Bloody ***, why are people so negative in thinking about the way I keep my expenses, and some people dont believe that we can keep our expenses low and NOW SOME ARE COMING UP WITH THIS TAX FRAUD THINGS...

FOR GOD SAKE.. WHY DO YOU THINK .. AND WHAT MAKES YOU THINK THAT I AM GOING TO DO SUCH THINGS... AND WHY ARE WE DISCUSSING ABOUT THIS TAX FRAUD THING AT THE FIRST PLACE...

GET SOME LIFE...!!!

Hi Scorpio_besal,
I fully agree with your comments above. Its absolutely your own choice how you manage your business expenses. As far as the documents list is concerned in your earlier post, you are spot on. Contract of services are not essential but if you wish you can include them.

Accountant's letter is essential so do include that. Hope this helps.

[scorpio_besal]

Thanks Shahjee Appreciate your advice.

[AccountantMatthew]

So I dont consider that a part of my expenses, even though I can include it while preparing my tax document. Smile

Noooooooooooooo! - You can't do this! Don't do this!

If you end up doing this you are either inflating what you are declaring as earnings to UKBA or you will be claiming business expenses that you have said don't exist to HMRC and effectively sending in a self assessment return that has understated income. Basically you've either incurred business expenses or you haven't - not a hybrid of the two that works in the favour of the taxpayer/applicant depending on the situation.

As an accountant I would never undertake an engagement where this scenario arises and I would like to think that all accountants are in the same boat as there are legal obligations for us as well as those who take this route.

Now you haven't done anything yet so you can't and shouldn't be accused of anything and I'm certainly not trying to suggest as such. All I would say is to have a good think about whether your telephone costs etc have been incurred in the course of the business and include them in your income declaration for both UKBA and HMRC or, if they aren't, then don't.


edited to include a word that was in my brain but somehow didn't make it as far as the keyboard.

[AccountantMatthew]

Some one said that I may also need,

A) Invoice Explanation letter from my accountant, is that same as profit and loss account

B) A letter from the accountant which would include the earning from both employment and self employment , BUT I DONT KNOW WHAT WOULD YOU CALL THAT LETTER.


I would appreciate if you would help me on this one.

No problem scorpio_besal - yes an invoice explanation and an accountant letter would be included. I personally include everything in the one accountant letter - so include total income and then split it down and analyse employed and self employed earnings and also include an invoice explanation as an appendix. I'm sure that other accountants would do the same.

[shahjee11]

So I dont consider that a part of my expenses, even though I can include it while preparing my tax document. Smile

Noooooooooooooo! - You can't do this! Don't do this!

If you end up doing this you are either inflating what you are declaring as earnings to UKBA or you will be claiming business expenses that you have said don't exist to HMRC and effectively sending in a self assessment return that has understated income. Basically you've either incurred business expenses or you haven't - not a hybrid of the two that works in the favour of the taxpayer/applicant depending on the situation.

As an accountant I would never undertake an engagement where this scenario arises and I would like to think that all accountants are in the same boat as there are legal obligations for us as well as those who take this route.

Now you haven't done anything yet so you can't and shouldn't be accused of anything and I'm certainly not trying to suggest as such. All I would say is to have a good think about whether your telephone costs etc have been incurred in the course of the business and include them in your income declaration for both UKBA and HMRC or, if they aren't, then don't.


edited to include a word that was in my brain but somehow didn't make it as far as the keyboard.

Accountant Matthew

Earning period may include income from prev tax year and current tax year whereas a tax return is not due until the end of year. If some one applies with an earning period from
FEB-JAN and then incur further expenses till 5th april, what should he do? I think as long as your total income does not fall below the income limit you claimed points for, it should not be a problem.

[AccountantMatthew]

My point is that you can't over-declare earnings for a UKBA application and can't under-declare self employment income when filing a self assessment tax return.

If someone has an accounting year from 6th April to 5th April but is claiming an earnings period from 1st Feb to 31st January then of course any expenses incurred in Feb/March would fall outside of what is declared to UKBA; it would be totally irrelevant. Likewise any expenses from the previous Feb/March would be taken into account when calculating earnings for the UKBA but would not fall into the later accounting year.

Using your examples, say someone has expenses of £10k all incurred in January but has sales of £30k - they have made a net profit of £20k. You can't claim that there were no expenses to the UKBA and then claim £30k of profit but then suddenly magic these expenses at a later date when completing a tax return and claim only £20k of profit. You are then either overstating income for UKBA (a no-no) or you are understating income to HMRC (a no-no) - there are either £0 of expenses or £10k of expenses, not both.


Finally I'm at pains to say that I am talking about a hypothetical situation here. I am not trying to suggest that anyone on this thread has done this/thought this/will do this. I'm assuming that the discussion has moved away from the original post and posts above and we now are talking theoretically.

[Manka10]

My point is that you can't over-declare earnings for a UKBA application and can't under-declare self employment income when filing a self assessment tax return.

that was exactly my point ages ago but some ignorant (& arrogant) immigrants have a habit of taking everything personally & flyin off the handle as if i was gonna put them in the dock for committing a felony...

[shahjee11]

If someone has an accounting year from 6th April to 5th April but is claiming an earnings period from 1st Feb to 31st January then of course any expenses incurred in Feb/March would fall outside of what is declared to UKBA; it would be totally irrelevant. Likewise any expenses from the previous Feb/March would be taken into account when calculating earnings for the UKBA but would not fall into the later accounting year.

Thank you for the clarification. Unlike other replies that just cause confusion and dont serve the purpose. It clears the mist as it was just for my own understanding.

[Manka10]

UKBA have access to taxes you pay so if you declare the whole amount as income without any expenses & then put in expenses so you dont have to pay as much tax, dont think you can get away

clear, concise, to the point, in layman terms & without any hint of rocket science type jargon whatsoever BUT I should've known, spoon feeding & reinventing the wheel was in order, my "mistake"

dont mean to hijack the thread & putting the OP back into perspective who has suddenly decided to mysteriously & unsurprisingly disappear after much huffin & puffin & swearin & SHOUTIN

[scorpio_besal]

Thank you Matthew for being there for all of us, and for sharing your knowledge, and helping us...

Shahjee... Thank you for being supportive, appreciate it.