Self-Employed

Everyone who earns money above a certain level pays tax to the HMRC . Most people, 22 million infact, are employed and have their tax deducted at source under the PAYE scheme.

But another 4 million work for themselves and are 'self- employed'. In other words they're in business on their own account and pay tax under a different scheme. Each year, they declare their earnings less any relevant expenses, and the 'net profit' becomes taxable. There are some advantages and disadvantages to being self-employed.

If you are compiling your own income and expenditure account for the taxman, be sure to read HMRC's notes which accompany your tax return. Some expenses are disallowed.

On the plus side, you are your own boss and there is scope for minimising the amount of tax you pay by setting relevant expenses against your income.

On the minus side, if your business goes bust, you wont be able to claim unemployment benefit nor will you be entitled for sickness or redundancy pay. And you'll be entitled to no more than the basic state pension meaning you should think seriously about make your own arrangements for retirement.

See also: what is a pension .

Last Updated: March 2008 © Moneyextra.com

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