Council of Ethnic Minority Voluntary Sector Organisations

• Work and work permits
• National Minimum Wage
• Paying income tax -PAYE
• National Insurance
• Sick pay amd benefits
• Dangers of working cash in hand and benefit fraud
• Self Employment
• Paying Tax

Work and work permits

Working in the UK – citizens of the EEA

• People from the European Economic Area (EEA) do not need permission to work in the UK – for countries in the EEA see Handout 1
• Citizens of new member states of the EU need to apply to the Home Office for registration under the ‘Worker Registration' Scheme when they find work (see www.workingintheuk.gov.uk )

Citizens of non-EEA countries

The situation here varies depending upon where a person is living now.

• If a person is already resident in the UK, their ability to work depends upon their status. Status is usually recorded by stamps in the passport. Status may be change by application to the Immigration and Nationality Directorate (IND) ( http://www.ind.homeoffice.gov.uk ) – Advice and various forms are available from this site.
• If a person is not yet resident they will need to get entry clearance from UK Visas at British diplomatic posts around the world. There are application details on the UK Visas website at www.ukvisas.gov.uk. The site also includes other useful information. A person from outside the EEA will also need to register with the police.

Prevention of illegal working

• It is the responsibility of all employers to ensure that their employees are legally entitled to work in the UK. Information for employers is available from the Immigration and Nationality directorate website.
• There is also a Home Office helpline for employers on 0845 010 6677

Tax and National Insurance

As a general rule:

• anyone working in the UK needs to pay tax
• anyone resident in in the UK needs to have a National Insurance (NI) number

The National Minimum Wage

National Minimum Wage

In the UK there is a National Minimum Wage (NMW). This wage applies to:

• Workers who are working here legally
• Who have a written, oral or implied contract with an employer

It does not apply to people who are genuinely self-employed. Currently the NMW is £5.35ph for workers older than 22 years, £4.45ph for workers aged 18-21 years inclusive (the development rate) and £3.30ph for workers under 18 and not of compulsory school age.

• The wage is reviewed annually

More details are available at http://www.hmrc.gov.uk/nmw.

The NMW may be reduced by up to £29.05 pw (£4.45 pd) if accommodation is provided. This is known as the accommodation offset.

HMRC and enforcement of the NMW

• HM Revenue and Customs are responsible for the enforcement of the NMW
• Employers are required to comply with the terms of the NMW legislation
• Employees may complain if they believe that the are receiving less than the NMW
• HMRC run the complaints process and a telephone help line (0845 6000678) – complaints forms are available also from www.hmrc.gov.uk/nmw
• Help and advice are available from www.hmrc.gov.uk/nmw/help/
• They also have a national network of 16 compliance teams

Paying Income Tax

Paying income tax

“There isn't a rich man in your vast city who doesn't perjure himself every year before the tax board. They are all caked with perjury, many layers thick. Iron-clad, so to speak. If there is one that isn't, I desire to acquire him for my museum, and will pay Dinosaur rates”. (Mark Twain - A Humane Word from Satan)

“Income tax returns are the most imaginative fiction being written today”. (Herman Wouk (1915 - ))

Everyone has to pay income tax...

The rate at which you pay tax varies and the amount of your earnings that you pay tax on also varies annually.

• Firstly you have a personal allowance, at present £5,035, you do not pay tax on this
• Tax is paid on the next £2,090 of your earnings at 10 percent – this is called the ‘starting rate’
• The next band from £2,091 to £32,400 is taxed at 22 percent – this is called the basic rate
• The next earnings band for earnings greater than £32,400 is taxed at 40 percent – this is the higher rate

Find more information about the allowances from www.hmrc.gov.uk/rates/it.htm

Tax and National Insurance

• Tax codes are calculated based on your allowances
• They tell your employer (and you) how much tax to deduct through the Pay as You Earn (PAYE) system. PAYE is a way of deducting tax in equal amounts from your regular salary
• The tax code usually consists of three numbers and a suffix letter – 503L is the tax code for a person with the single persons allowance of £5,035. The L is for administrative purposes and does not alter the tax you pay. Information on suffixes is available fro the HMRC website

National Insurance

National Insurance

• You pay National Insurance contributions (NICs) to build up your entitlement to certain social security benefits, including the State Pension. The type and level of NIC you pay depends on how much you earn and whether you’re employed or self employed. You stop paying NICs when you reach State Pension age.
• You pay NICs if you are an employee or self-employed and you are aged 16 and over, providing your earnings are more than a certain level. You stop paying NICs at State Retirement age, even if you continue working. This is currently 65 for men and 60 for women but will gradually increase to 65 for women over the period 2010 to 2020.
• If you are employed, your employer deducts NICs on your behalf – these are known as class 1 payments.
• If you are employed, your employer also pays NICs into your account. These are called the called employers’ national insurance contribution.
• If you are self employed, paying NICS are your responsibility.
• The basic contribution – class 2 can be billed quarterly or it can be paid by monthly direct debit.
• Exemption can be granted if your earnings fall below a limit known as the Small Earnings Limit (SEE)
• Self employed people may also be liable for Class 4 contributions. These are profit related and based on your annual return for tax purposes. Class 4 contributions do not contribute to benefits.

NICs – Rates and Allowances - Employed

• Class 1 contributions are paid on salaries between £84 and £645 pw
• Employees pay 11 percent of salary and employers 12.8 percent of salary.
• Employees above the upper limit pay 1 percent on these earnings.

NICs - Rates and Allowances – self employed

• The class 2 rate is a weekly flat rate of £2.10 per week – the SEE is £4,465 pa
• The class 4 lower profits limit is £5,035 pa and the upper limit is £33,540 pa
• The rate between these limits is 8 percent the rate above the upper limit is 1 percent

National Insurance Numbers

• The NI Number is unique to the individual and is kept for life. It is used to deduct PAYE, calculate entitlement to State Pension and other benefits
• NI Numbers are formed as follows AB 12 34 56 C
• People who are normally resident in the UK and whose parents are receiving child benefit are sent their number just before their 16th birthday
• Other people need to apply

When and how to apply for an NI Number

• If a person is not automatically issued with an NI number they need to register for one – entitlement is not always automatic.
• Registration is necessary if:
  • People without a number start work or self employment
  • They or their partner starts to claim benefit
  • They wish to start making voluntary NICs and would benefit from so doing
• To register an appointment is made with JobCentrePlus by phoning 0845 600 0643. This helpline will check that a number is needed and arrange an interview for evidence of identity.

Sick pay and benefits

Sick pay and benefits

• A number of benefits arise from paying NI. The most obvious of these is state retirement pension payable to men at age 65 and women age 60 at present
• There are other benefits including:
  • Statutory sick pay
  • Maternity pay and allowances
  • Adoption allowances
  • Incapacity benefit
  • Unemployment benefits
  • Bereavement Benefits
• The list is very long – help can be obtained from www.direct.gov.uk , JobCentrePlus or Social Security Offices.

Dangers of working cash in hand and benefit fraud

Working ‘cash in hand’

• This is illegal!
• Not only is it illegal it is also dangerous – you are unlikely to be covered by insurance if you have an accident
• You are also likely to be exploited – for example by not being paid the minimum wage, no sick pay, holiday pay or other benefits

Self Employment

Self Employment

Being self employed can have advantages but there are conditions that have to be met. Information on this can be obtained from the HM Revenue and Customs Website, the HMRC publication ‘Employed or Self Employed' (IR56), www.directgov.gov.uk . Other useful advice can be had from the HMRC Booklet SE1 – ‘Are you thinking of working for yourself?' and ‘Working for yourself – a guide' also published by HMRC.

The next two slides have a simple checklist to indicate employment status. Another factor to bear in mind is that employment status can affect immigration status. Expert advice may be need for example from the Citizens Advice Bureau.

Employed or self-employed

You are probably self-employed if you:

• run your own business and take responsibility for its success or failure
• have several customers at the same time can decide how, when and where you do your work
• are free to hire other people to do the work for you or help you at your own expense
• provide the main items of equipment to do your work

You are probably employed if you:

• have to do the work yourself
• work for one person at a time, who is in charge of what you do and takes on the risks of the business
• can be told how, when and where you do your work
• have to work a set amount of hours
• are paid a regular amount according to the hours you work, and get paid for working overtime (even if you do casual or part-time work, you can still be employed)

It is possible to be employed and self-employed at the same time.

Registering as self employed

• Registration must be within three months of becoming self employed – penalty for delay £100
• Registration by phone on 0845915 45 15
• Or download a form from www.hmrc.gov.uk and register by post (address on the form)
• Self employed people are responsible for paying their own tax, national insurance and may need to register for VAT

Tax and Self assessment

• Self employed people are responsible for their own tax and national insurance. If the self employed person employs other people he or she is responsible for employees tax and national insurance – for deducting it through PAYE and paying it and in the case of NI the employers contribution to HMRC. This is covered later. Help and guidance for self assessment for tax and NI can be obtained from the HMRC publications included with the course pack and the following websites.

http://www.hmrc.gov.uk/sa/guidelines.htm
http://www.hmrc.gov.uk/sa/selfemp.htm

The importance of record keeping

• The key to self assessment as a self employed person is good record keeping. This enables accurate completion of the forms ensuring that all deductions are made so that too much tax is not paid.
• Self assessment records have to kept for a period after the return has been filed – failure to do this can result in penalties.
• Record keeping is summarised on the next page.

Record keeping

Rules introduced in the 1994 Finance Act mean that you now need to keep all appropriate records before this it was to your advantage to do so. HMRC normally expect. The following to be kept:

• record all sales and other business receipts as they come in
• keep back-up records, for example, invoices, bank statements and paying-in slips to show where the income came from
• record all purchases and other expenses as they arise keep a record of all purchases and sales of assets used in your business
• record all amounts taken out of the business bank account, or in cash, for personal use
• record all amounts paid into the business from personal funds, for example, the proceeds of a life assurance policy

Retain your records for five years from date on which your tax return was filed.

Paying Tax

Paying Tax

• The due date for paying tax is the 31st January after the end of the tax year covered by the return.
• Often two payments on account are made for the tax year before the return for that year is due. Payments on account are due made on:
• 31 January in the tax year and 31 July after the end of the tax year (six months later).
• If these two payments amount to more or less than the tax which actually becomes due for that tax year, then a balancing payment (or repayment) will be due on the following 31 January.

Making a Payment

Payments may be made in a variety of ways:

• By Internet or Phone banking
• By Bank Giro
• Through the Post Office
• By post to the HMRC Accounting Service at Shipley