Thanks dude.
I'm a couple of "days" into it.
I say "days" as i'm charging £300 per day but i'm doing it around my full time job so between 2 and 4 hours in the evenings and either then a good 4 - 8 hours Saturday or Sunday.
Before I quoted I said I would spend about an hour (non chargeable) starting the project to see how quickly I can find my way around and get to know the system. I then quoted the first project at 5 days and I think that's going to be about right from my progress so far.
Does anyone here (UK based preferably because of tax etc) have any experience contracting?
The reason I ask is I'm slightly confused as to which route to go down in regards to invoicing.
I think the best option at the moment because of the small amount of cash is to act as a sole trader, I believe this enables to to invoice him and have the payment paid directly into my personal bank account or a cheque in my name.
But i'm still not 100% certain how I go about paying tax on this? Do I wait until the end of the tax year and see how much work I've done and phone them up and say hey, this year I earned this how do I pay the tax I owe you?
Bear in mind it's a second job.
I've looked at a Ltd company and if I ever do this full time I will definitely proceed with this idea but a couple of days a month doesn't seem worth it.
Tax is a slippery subject...
I'll try to explain what I know for you.
First, self assessment.
you need to do self assessment in October if you return by paper.
January is the deadline for electronic submissions.
Given that you've only just started you might not have to make any submission until October next year.
At this point you will tell them that you've earned X amount for your day job and paid Y tax.
you'll Also declare that you've earned Z from your sole trader business as a software consultant.
once you've made the submission you won't hear anything.
The following year you will be sent a bill for tax, and you'll make your next tax submission. (earn X paid Y also earned Z again), then you'll continue in this manner effectively paying tax a year behind the money being earned.
Don't get complacent.
lets assume you earn 35k in your day job, which I think puts you somewhere near the cusp of the 40p tax rate,
if you earn £10K from contracting you'll owe £4K in tax.
If the next year you're having a rubbish year and only earn £1k from contracting, and you've already spent all the money from that first tax year, you're going to need to find the £4k tax bill from your own pocket.
The following year you'd only have a £400 tax bill on the £1k that you earned.
Given the way that the thresholds work you may find that some of what you earn is taxed at a different rate to other parts of what you earn. so you pay different rates on some. given that you have a day job, none of your extra earnings are likely to be tax free.
stock advice is whatever you earn keep 20 - 30% in a savings account ready to pay tax. because you will need it, and maybe some more.
(obviously if you're "only" paying the 25% rate then you'll also get some nice savings on the go doing this. but better to over save at 30% (so that you can afford some tax at 25% and some at 40%) than just assume everything will be at 25% or some tax free)
Tax deductibles.
There are a lot of things that are tax deductible, especially when you are running your business from home.
for example, you have a dedicated office space? -some of your rent or mortgage is tax deductible,
you're using power? some of your power bill is tax deductible.
heating your house whilst you;re working in it, some of your gas bill is tax deductible.
internet vital for your work, - again, a share will be tax deductible.
bought a new computer and use it for work? - tax deductible -and this can be deductible over a few years depending on it's depreciation.
need to use your car to get to client meetings? purchase price can be tax deductible, servicing is part deductible, tyres, etc, even VAT on the fuel for the business journeys.
(keep receipts and bills, you'll need them if you are audited, -5 years)
Stock advice, - seek the services of an accountant. - some accountants will work on the basis that they take your self assessment and "check it over" if you have already claimed everything as tax deductible that you can think of remember to tell them, it's pretty common that they add "sundries" onto the end as a deductible, this is to include things like heat and light. (you can't claim twice).
Sit down with them and get a good introductory meeting, explain what you're doing etc, tell them about everything you use, ask about deductibles, and make sure that they tell you when they need things. (it's no good submitting books to them in December if they might take 2 months to go through them)
You MUST submit your tax return by the deadlines, if you don't it's an offence and you can be fined.
Once you start submitting you can't "forget" the next year, and if you don't earn anything you need to tell then that you didn't earn.
If you just think that you didn't earn you don't owe tax and can't be bothered with the paper work, then you didn't return and can be fined.
Setting up your own company, can be expensive, (corporation tax, employers contributions to tax and NI, and you still need to pay your employees contributions.)
Setting up a company taking a minimal wage and then payment by share dividends, (which are tax free) is possible, but a bit dodgy, and there are laws that are devised to stop this.
You'll need to investigate IR35...