Benjamin Franklin is quoted as saying “‘in this world nothing can be said to be certain, except death and taxes.” It is with this in mind, that this blog post focuses on the subject of becoming a self-employed tutor and how you go about paying your taxes. This article has been prepared by our friend Henry Fagg from The Tutor Pages.
According to a recent estimate, there are over a million people in the UK earning money as private teachers of one kind or another. A very large proportion of these tutors should be registered as self-employed for tax purposes and be submitting details of their earnings to the UK tax office (HMRC).
But how many of these tutors really understand the tax implications of what they are doing? This article looks at some of the main areas private tutors should consider.
Registering as self-employed
If you do any work as a private tutor, you’re probably self-employed, and will therefore need to submit details of what you earn to the government. This is called the ‘tax return’ and can be completed online. This includes a) those who only work part-time as a tutor and are employed elsewhere (such as in a school) and b) those who work for tuition agencies (around 85% of tutors who work for tuition agencies are still self-employed).
Don’t get caught out. In recent years, HMRC has been contacting tuition agencies asking for details of tutors on their books in order to tackle tax evasion.
Once you’ve started earning money as a tutor, you need to register as self-employed with HMRC within three months, or risk paying a fine.
What do I pay?
What you pay is divided into three. Firstly, there are Class 2 National Insurance Contributions (NICs) which are currently £2.70 a week. These go towards your state pension and other benefits, and HMRC will help set up a way for you to pay these regularly. Secondly, there are Class 4 NICs: 9% on profits between £7,755 and £41,450 for 2013-14, plus 2% on any profit over that amount. These payments are collected at the same time as your income tax.
For 2013-14, earnings above the tax-free personal allowance (currently £9,440) are taxed at 20% on earnings between £0 and £32,010 and at 40% for earnings over £32,010.
Income tax becomes due quite some time after you’ve actually done the tutoring. Here are three sets of dates you need to understand: the tax years which run from 6 April to 5 April, the deadlines for income tax payments, and the deadlines for submitting your tax return. Below is a diagram which explains how the system works:
Bear in mind:
- after your first tax year, you have a full 9 months before you need to pay any tax;
- This may seem nice, but actually at this time you’ll be hit with a double tax bill! That’s because HMRC likes to take a biannual payment on account for subsequent years, and your first tax bill coincides with the first payment on account for the following year. Your payments on account are of course estimates, and so can be negotiated with HMRC.
Keeping accurate business records
In order that HMRC can calculate the correct amount of tax you need to pay, you’ll need to keep good business records. You can use a very simple system where you record your income in one column (with the date) and your allowable business expenses in another column (with the date).
It’s important to note down your expenses because when you complete your tax return at the end of the tax year, you can deduct these costs from your taxable profits, and so reduce your tax bill. Expenses for your business include things such as textbooks, stationery, travel, business use of home, advertising, insurance and membership fees to relevant organisations.
Further details on record keeping (including a template for recording income and expenses) and the kinds of expenses allowable in your business are available in The Tutor Pages’ guide to tutoring.
We have been blogging advice for tutors for a while now – our ‘Tips for Tutors’ series. Just in case you missed any, you can find them at: