Paying Self-Employment Tax as a Tutor

The Taxing Nature of Tuition

Tax everything and avoid getting some serious handcuffs

As I sit here, flitting through piles of receipts and clicking through page-after-page of invoices, I ask myself, “Who am I?  How did I get here? And what is happening right now?”  If I’m asking these questions, it usually means I’m filing my self-employed taxes with Her Majesty’s Revenue and Customs (known as HMRC). The answer to this, of course, is that I am Tavis “The Tutor King”, professional psychology tutor extraordinaire; I arrived 12 years ago on an existential journey of self-discovery; and right now, I’m currently rediscovering myself by way of paying self-employment tax as a tutor.

Every private tutor who works in the UK is working towards self-employed earnings.  In other words, none of us are paying tax on what we earn, while we earn it (known as PAYE). This is different from employed people with salaries. Therefore, we must keep track of what we earn and declare, so that if we go over the tax threshold in profit (currently set at £11,500 for the 2017/18 Tax Year), we pay our fair share of income tax and National Insurance contributions.

Should I Even Bother with Paying Self-Employment Tax as a Tutor?

You may be thinking: “But I just help kids study and their parents pay me in cash.  Do I have to pay taxes?”  Yes.  Yes you do.  And more importantly, if you work for agencies, like The Profs, the company keeps records of how much cash they give you per year, and will have to share that information with HMRC if asked for it. Then, if HMRC has a record that you’ve earned money and not declared it, well you may be an academic and tuition superstar—but be ready to share a cell with Al Capone if you do!

Al Capone - one of America's most notorious gangsters - He definitely wasn't paying self-employment tax as a tutor

OK, jail time might be a bit dramatic (unless they think you are actively trying not to pay – that’s evasion, WHAT!), but you can expect fines and if you do have a PAYE job as well, expect to have your pay docked with penalties long into the future.  Therefore, it pays to be honest and file, however, this in itself can be a challenge.  You may tutor the wonderfully decorated worlds of English Literature, Film Studies or Queer Theory but that doesn’t mean you know a thing about accounting.  That’s where my several years of working experience have come in to help!  I will tell you here in The Prof’s very own blog how to manage your taxes and still come out on top!

Step 1: Declaring Your Self-Employment.

Whether you are a full-time self-employed tutor like me, or have a lecturing day job and tutor by night, you still need to declare yourself as self-employed to HMRC.  This is relatively easy.  Do this online here.

The questions are relatively straightforward and the form is short (for now…).  It is simplest to register as a sole trader using your own name as a company name, creating ‘Your Name Tutoring’. You should do this technically 3 months of starting. You will need your National Insurance Number, which you can find on any pay slip, P60 or tax return. If you don’t have these documents, just click here. You will receive a Unique Tax Reference number and get sent an activation code by post, use this within 7 days.

To see a more detailed explanation then read our blog on Declaring You’re a Self-Employed Tutor.

Step 2: Keep Everything

This may be the hardest part for those who are creatively chaotic (otherwise known as disorganised). You must keep every receipt, invoice and note that documents where you spent money since starting your tuition.  This means that you must record all money you make and all money you spend.  Let’s start with earning money first:

You need to keep everything - even the little things!

Taking Money

When you are starting out, a receipt book is helpful.  Traditional and reliable (if a bit old-fashioned), the carbon duplicate receipt book is a great investment and provides a means of writing a receipt for tuition.  If you’re clever and choose this route, you might even print some stickers of your name and number and stick them on the customer receipts so that your clients can contact you quickly or have your details handy for when they tell their friends.

Spending Money

As for spending money, let’s start with that receipt you just got for the receipt book!  You gotta keep it.  It is what we call in the trade, an expense.

An expense is any time you spend money on the business, and this is reclaimable!  You see, HMRC only tax your profits—not your cash total.  So for example, let’s say you earned £25,500 in the tax year, but you spent £14,000 in expenses.  That means you earn £11,500 and you’d not have to pay any taxes (because the first £11,500 is tax-free in the UK)!  Great stuff, right?  Well, it’s only great if you keep your paper evidence that you spent the money.  Therefore you need to create a filing system for keeping your receipts.

Read our blog 10 Top Self Employed Allowable Expenses to see what count as an expense.

Step 3: Organise Everything

When I started out, I only had a couple of clients, so I got myself this nifty little plastic file for keeping my receipts in.

Organise everything - especially the big things!

However, as my business grew and grew, it couldn’t hold all the receipts anymore.  I strongly recommend if you plan on paying self-employment tax as a tutor you visit your local trade merchants (yes, as in tools) and get these little boxes tradesmen keep screws and nails and washers in.  They are great for keeping monthly receipts in.  At the end of the day, just empty your wallet or purse into the correct month!  Easy as that! Not letting a backlog build up is little and often the trick.

Also, online filing is important too.  Some good news here: most Tutors spend stupid amounts of money over at Amazon on textbooks and stationery.  Well Amazon keeps all your invoices in your Orders history, so this is a big help when paying self-employment tax as a tutor!

Amazon keep invoices for you

Also, The Profs post all your invoices/payment orders in TutorCruncher, so already done for you is the record keeping- rather than having to log every payment in, just download all at the end of the tax year.

Receipts, Receipts, Receipts!!!

Last, you might want to consider your credit card statement as a record as well.  For those of us in London who get around on TFL, Contactless payments are incredibly easy for travelling with Oyster.  You can use your credit card statement to keep track of your travel expenses in one place.

The key thing is, any and every time you spend money, keep a receipt somewhere—even if it is a receipt you write yourself! For example, I top up my pay-as-you-go mobile with my debit card.  You can write your own receipt out in your paper receipt book for what you spend and when.  That’s good enough when paying self-employment tax as a tutor!

You need to file if you are paying self_employment tax as a tutor!

Step 4: Read Everything

As you get closer to doing your taxes, you’re going to need to an explanation on the rules. For example, if you purchase a computer that you use for BitPaper and online tuition, but you also do personal work as well, can it be written off?  Yes, it can, but you’d better check the rules on how to do it.

The rules can be found in lots of places online.  HMRC offers some advice (albeit, scant and sometimes a bit unclear).

You also get a guidance sheet for the self-assessed tax and that is helpful too when paying self employment tax as a tutor.

It can be helpful though, to make friends with an accountant or bookkeeper to help you in case you have any questions along the way.

Step 5: Record Everything

And now the hard work begins!  You now must record all those incomings and outgoings into one place to see what the final result is for what you owe.  Now, to help with this, I am offering as a free gift, my very own tax spreadsheet for organising your incoming cash and outgoing expenses. My personal key when paying self-employment tax as a tutor. The formulas are already programmed so you shouldn’t need to change anything, however, if you want to tweak it for your needs, feel free to go right ahead.

Notes are needed for paying self-employment tax as a tutor

If you take money from a client or are paid by The Profs, put that money in the Cash column.  If you wish to record your outgoing spend, put this in the correct corresponding column.  It is self-explanatory to a point.  If you are doing the Short Tax Return, all that matters are the bottom lines (found in the final Figures Tab) but if you are doing the Long Tax Return, then you will need the expenses breakdown and that is when the columns are useful.

Step 6: Schedule Your ‘Tax Week’

For many businesses, this can be difficult because they are working all year long.  For tutors though, we have a slight advantage as our work can be quite seasonal, with summers being quiet.  This is why I always schedule doing my taxes the week after the last Psychology A-level exam.  I don’t schedule anything else in, I just do taxes and that’s it. 

I personally like doing my own taxes as it helps me become a better businessperson.  After all, I spend eleven months of the year being a good teacher and academic, but doing my own taxes forces me to reflect on how I run my business.  For example, did I spend enough money on advertising?  Too much on travel?  Will I need to invest in better technology next year? Having these business details brought to light in a tax form really makes you think about what you can do to improve your trade and maximise your profits.  For these reasons, I make the time and commit to it every year.  It’s as important in the annual calendar as Christmas, New Year’s Eve or Exam Results Day.

The Alternative

It’s worth mentioning, there are alternatives to what I do.  You could set aside a day every month to bring your books up to date.  That makes for a less stressful life.  Alternatively, you could just forget doing your taxes entirely and leave it up to the professionals and hand over all your receipts and invoices to a tax professional who will do this all for you.  If you prefer that—great news—the tax professional’s service is an expense so that can be written off too!

Last, there is a final word about paper versus electronic filing.  Many people prefer to file electronically at the HMRC website.  Tutors paying self-employment tax find the menu and screens easy to populate and submit.  I’m, however, am not one of these people and find the website infuriating.  Give me paper any day.  If you are like me and would prefer to do it the old-fashioned way, just call HMRC on the telephone and ask them to post you a form.  You can complete this in ink and post it back to them. Either way, now paying self-employment tax as a tutor is never going to be hard again!