Q: I have been self-employed since January 2007 and wish to work as an employee again. What do I need to do in terms of my tax status? Are there any other tax issues to address?
Nov 22 2007
Answered by: Clive Lewis Ask a question
You should have notified HM Revenue & Customs when you started in self employment. As you have been self employed across a tax year you will need to get accounts prepared (showing your sales, costs and net profit) for the period from January 2007 to the date of closure of the business.
This will form the basis of your Income Tax and National Insurance liabilities for the years ended 5th April 2007 (2006/7) and 5th April 2008 (2007/8). You will need to complete two years Self Employed forms as part of your 2007 and 2008 Tax Returns.
It appears that you will be employed and self employed in the same tax year. So for two tax years, profits from your self employed business will be added to any other income you received (such as employment income) in the tax year to calculate your total taxable income.
Tax on your self employed business profits is payable in two instalments on 31 January and 31 July together with an adjustment of any balance owing the following 31 January. So as you started in January 2007 the first tax and NIC you pay will be in January 2008 being the liability for the tax year to 5th April 2007.
Regarding the second period from 6th April 2007 to date of cessation in year ended 5th April 2008 you will be required to make payments on account on 31 January 2008 and 31 July 2008 (if the total tax and NIC is more than £500) with the balance payable on 31 January 2009.
When you have ceased trading and all the records are up to date I suggest you go to and accountant and get accounts done for the whole period of your self employment and assess the liability for the two tax years. When you have the figures your accountant should then talk to the Revenue to see if they will agree not to receive payments on account.
When you go back into employment you will need a code number for the tax on your pay. You will have to complete a form P46 (Employee without a Form P45) to get you back into the Pay As You Earn system. It is up to the Inland Revenue whether they apply the whole of your 2007/8 personal allowance (£5,225) against your self employment or use some of it in your code number for calculating the tax on your pay in employment. Normally they will not issue a revised code until all the tax from your self employment is paid. This is something your accountant can iron out with the Revenue.
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