Whilst the Limited Company only pays Corporation Tax, the Director’s salary and shareholder’s dividends are subject to Income Tax and National Insurance contributions. However, if the salary is within the ‘Personal Tax Allowance’, the Income Tax will not have to be paid27.
“Tax is a complex area with individual circ*mstances greatly affecting the structuring and planning required for the most efficient outcome. Family setup, level of income and stage of career are all important considerations”.
Keith Smith, GHLD Chartered Accountants
Implications of IR35
IR35 stands for ‘Inland Revenue, 35th news release of the government budget’. It was introduced in April 2000 as a measure to combat tax-avoidance by businesses. Inland Revenue has since been modified to HMRC (Her Majesty’s Revenue & Customs) but the legislation objective remains the same; an anti-tax avoidance rule, set by law.
IR35 aims to make sure that self-employed workers, particularly those who are a Limited Company, pay the same taxes as an employee of a business that does the same job and virtually the same days/hours of duty. For example, if a self-employed optician is providing the same services as the employed optician, but in the capacity of a contractor, they are essentially an employee of the business that they are serving. By contracting through a Limited Company, the self-employed person is paying fewer taxes than their employed counterpart. The HMRC will be on the lookout for this type of ‘disguised employee’28.
From April 2021, revised legislation for ‘Off-Payroll Working rules (IR35)’ will come into effect. This means that the tax status of the self-employed person will be assessed by the business that hires the contractor. Should IR35 rules apply to the self-employed person, they will have to pay the correct taxes, and the employer may be responsible for these deductions29. As an optician, if your employer provides your testing equipment, you are likely to be within IR35.
Ultimately, the people affected by IR35 are the contractors, any agencies and the end client business. The end-client must assess whether the contractor’s employment type is that of a ‘disguised employee’. Traditionally, the employment status would be declared to the HMRC by the self-employed person, but from April 2021, the employer will determine the employment status30. A critique of IR35 is that it dismisses the fact that the freelancer works on short-term contracts and does not have a steady income.
Current Affairs – The Impact of Coronavirus
Due to the novel coronavirus pandemic, the UK Government, along with all heads of nations, have had to introduce measures to help mitigate the economic downfall caused by the large-scale closures of businesses. To stop the spread of the virus, businesses had to close their doors or work under severely controlled measures. As a consequence, many companies and self-employed traders found themselves out of work and with zero earnings.
The UK Government implemented various relief measures to help businesses. Some of the relief efforts include grants offered to self-employed individuals and loan schemes for larger businesses that have to protect their staff as well as goods.
This pandemic has highlighted how important Government funding is during periods of emergency support. Whilst some people continuously find faults with fiscal policies, we shouldn’t dismiss that the emergency funds, community aid, hospital care and covid vaccinations were all founded under extreme pressure during one of history’s most uncertain times.
Get advice from an Accountant
Tracking income and expenses for a business can be a time-consuming and demanding task. To ensure compliance with financial authorities, it may be best to employ the services of an accountant. The accountant is the money-expert. Their main purpose is to ensure that all matters pertaining to tax and profit, are accounted for legitimately.
The accountant will charge a fee for their services. However, this fee is offset by the benefits that they offer the business. An accountant has the most comprehensive knowledge regarding accounts and thus maximising profit, reducing the deficit and freeing up the business owners valuable time. As a business grows, money management should be designated to the most qualified person to do so; the accountant.
“We at GHLD are happy to offer an initial no-obligation meeting and discussion of your current and future position to see how we may assist you”.
Keith Smith, GHLD Chartered Accountants
Tax Evasion is a Criminal Offence
Tax evasion is the deliberate action to avoid paying owed taxes, to the HMRC, by individuals, businesses and trusts. Tax evasion is a legal offence that can result in financial penalties, criminal charges and imprisonment31.
Keith Smith is a Chartered Accountant and a valued member of our panel of Oodo Experts. Click here to learn more about Keith and what he can do for your business.
FAQs
Tax considerations for self-employed opticians
What taxes do self-employed pay UK? ›
If you're self-employed, you pay income tax on your trading profits. This is generally the amount of money left after you've taken off business-related expenses. claim one or both of these standard tax-free allowances: £1,000 trading allowanceOpens in a new window for self-employed income.
Do opticians charge VAT? ›
Eye testing fees are optical services and are exempt from VAT. Such fees should be separately identified if supplied with other taxable supplies of services / goods. The supply of the corrective spectacles and contact lenses are subject to VAT at the standard rate.
Do freelancers pay tax in the UK? ›
Your freelance job is self employment and as such, requires the completion of a Self Assessment tax return. As you are resident in the UK, you are taxable on the profits from your freelance work in the UK, and also need to pay National Insurance.
What are the self employment taxes? ›
If you're self-employed, you're responsible for paying both the employer and employee portions of your Social Security and Medicare tax—a total of 15.3 percent on 92.35 percent of your net earnings from self-employment. Use Schedule SE to calculate your self-employment tax.
How much tax will I pay on $30,000 self-employed in the UK? ›
The deadline is January 31st of the following year. You pay £2,054 (20%) on your self-employment income between £0 and £10,270. You pay £7,092 (40%) on your self-employment income between £10,270 and £28,000. You will also have to pay £616 (6%) on £10,270 of your self-employment income.
Do self-employed pay 30 percent tax? ›
The self-employment tax rate is 15.3%, with 12.4% for Social Security and 2.9% for Medicare. However, the Social Security portion may only apply to a part of your business income. That's because of the Social Security wage base. For 2022, the Social Security wage base is $147,000 and increases to $160,200 in 2023.
Are eye lenses tax deductible? ›
You can deduct the costs for prescription eyeglasses and eye exams on your tax return. But they must be a part of your itemized medical deductions, which need to exceed 7.5% of your adjusted gross income.
Do I need to pay for the opticians? ›
It depends what medical condition you have, but here are the conditions that mean you qualify for free NHS eye tests: you're registered as partially sighted or blind. you have diabetes or glaucoma. you're 40 years of age or older and one of your parents, a sibling or child has been diagnosed with glaucoma.
What is SDC for opticians? ›
Separately Disclosed Charging (SDC)
In recent years opticians have used a method where they separately charge their customers for the supplies of goods and services.
UK residents have to pay tax on their UK and foreign gains. Non-residents have to pay tax on income, but usually only pay Capital Gains Tax either: on UK property or land. if they return to the UK.
Can I work in UK without paying tax? ›
Whether you need to pay depends on if you're classed as 'resident' in the UK for tax. If you're not UK resident, you will not have to pay UK tax on your foreign income. If you're UK resident, you'll normally pay tax on your foreign income. But you may not have to if your permanent home ('domicile') is abroad.
Can I be self-employed and employed in the UK? ›
You can be both employed and self-employed at the same time, for example if you work for an employer during the day and run your own business in the evenings. You can check whether you're self-employed: online using the check employment status for tax tool.
How much tax will I pay on $20,000 a year self-employed? ›
For example, if your taxable income is $20,000, you would pay self-employed tax of $3,060. So, you would have $16,940 after taxes. Q. How much tax do I pay on 1099 income? The amount of tax you pay on 1099 income as a freelancer in the US depends on your total income, tax deductions, and tax brackets.
How to avoid self-employment tax? ›
- Form an S Corporation.
- Subtract Half of Your FICA Taxes From Federal Income Taxes.
- Deduct Valid Business Expenses.
- Deduct Health Insurance Costs.
- Defer Income to Avoid Higher Tax Brackets.
As a self-employed individual, generally you are required to file an annual income tax return and pay estimated taxes quarterly. Self-employed individuals generally must pay self-employment (SE) tax as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves.
How much tax will I pay on $500 a week in the UK? ›
Weekly income: £500. Personal allowance: £12,570 per year / 52 weeks = £241.73 per week. Taxable income: £500 - £241.73 = £258.27 per week. Income tax: £258.27 × 20% = £51.65 per week.
Do I need to do a tax return if I earn under $10,000 in the UK? ›
So how much do I need to earn to file a tax return? As a general rule, if you earn more than £1,000 of untaxed income during a tax year, you will have to do a tax return.
Do you pay more taxes if you are self-employed? ›
In most cases, self-employed contractors will pay a slightly higher tax rate than employees on paper – but overall they typically pay a lower amount of taxes due to business tax breaks and expense deductions.
How much do you need to make self-employed before paying tax? ›
You usually must pay self-employment tax if you had net earnings from self-employment of $400 or more. Generally, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment.
