I have spent the last three years running the other way whenever anything associated with the dreaded W word came up, blanked the ranks of recruiters (they thin out fast enough after six months), turned down the odd design and build and done the odd one pro bono rather than face the grisly issue of self-assessment. But eventually my luck ran out and I was offered just enough to be worth registering for SA, particularly as I am short one year of NI for 35 years to get a full State Pension 😉
That’s working as a minimum-wage contractor, rather than as HRT paying consulting engineer that is, sic transit gloria mundi, eh? At least it’s only about three days a month. I did some scientific work and electronics for a bunch of guys, so I have to lose about five grand of income somewhere – my SIPP looks like a great place to start. Paradoxically, I would be daft to claim the cost of my microscope and chartered engineer subscriptions to reduce my income as real self-employed workers do, because washing as much income as possible through the SIPP nicely returns me the 20% VAT I paid on the microscope in the form of an income tax refund on tax I don’t pay. It’s a strange old world indeed, working below the tax threshold.
I’m a deeply lazy bastard, and after 30 years of it I don’t need to sell my time for money. I didn’t even have Jim’s transitory ennui, three years out of the workplace has taught me the world is plenty interesting enough to keep me occupied. Unlike Jim, my exit from the workplace was a rout, not a controlled exit, I was therefore saved from that sort of angst. You just don’t mourn the scenery of the long road trip if you got to crawl from the wreckage fifty miles from journey’s end 😉
However, recently I failed to step back quickly enough after a fellow doing the books for an enterprise dropped out hastily, and I ended up with running the books, and doing in the corporation tax and companies house annual return, so I will continue to earn some wedge for that and some on and off scientific analysis and engineering. I followed TFS’s step by step guide how to register and fill in your self-assessment tax form It’s early days yet, and I have the suspicion that I really should have started here since I am not an employee. It appears I have a year to get this right, and he’s dead right, it is not straightforward. [ref]I owe TFS a beer, because I have managed to complete this now without gnashing of teeth[/ref].
You can’t motivate the financially independent with money
I did this to help out rather than to be able to buy a Cornucopia of Crappy Christmas Consumer Shit 😉 On the other hand I am not a Zen being of true light and ultimate detachment. I have a problem with working for free[ref]The Guardian asserts this is a specific problem with my generation and gender, though I don’t observe this particularly in the local environment, grey hair predominates in charity/volunteer roles, and I note the younger generation may be forced into unpaid work to broaden their CVs, which may distort the survey[/ref] in a role where people have been previously paid for it, and also particularly where there is something that needs to happen by particular times. However, I’m not that sure that the money will change my lifestyle.
Being a lazy toad the first thing I did was make a PERL script to munge the downloaded online bank statements[ref]the modern way is to use a third-party service like Yodlee, give them your bank login details so they can log in to your bank and transfer this data, which is how Sage One does it. As soon as I read that I decided these were not people I am prepared to do business with, because doing that instantly gives the bank carte blanche to repudiate any losses you incur due to fraudulent activity even if unconnected. No thank you sir. Not. Going. There.[/ref] into something I can import into Quicken, because life is far too damn short to key hundreds of transactions on minimum wage. I set them up way back when with Quicken, because I understood it. The dude who quit in haste was setting things up with Sage One Accounts and running parallel, but I shut that down because Sage One will nickel and dime us for add-on this and add-on that to get the management reporting of product lines and cost of goods sold that Quicken already does. Sage One will make the figures add up and track VAT but it won’t help you answer the question “are we spending more on making product X than we get selling it” which is a pretty fundamental thing people want to know if they’re running a business.
It was the classification and categorisation of Quicken that help me understand and bring order to my own personal finances. While I wouldn’t go as far a the Rhino and consider myself Ermine Enterprises PLC tracing where the money went, using the principles I learned running that multimedia company taught me to chase the waste. Before, I had simply used Quicken in order to make sure Micawber was satisfied and get the numbers to add up. Spending less than you earn is 80% of the win of personal finance – do that over a working life and some of it will stick to the sides.
By the time they’d finished upgrading Sage to be as useful as Quicken it would be cheaper to pay an bookkeeper to reconcile the bills from the time-honoured shoebox. And anyway. the Ermine Does. Not. Do. Cloud. I just don’t get it how people entrust key functions like that to cloud, but then I’ve seen dodgy sorts hold my data to ransom. You spend a lot of effort putting transactions into an accounting system, and cloud providers own the keys to your effort. When they say pay more or else, you get to pay more. Of course they all offer a low cost trial period, I believe this is the same way street drug dealers work to raise their customer base 😉
The strangeness of inverse taxation
I’m not doing this for the wedge, though it will enable me to pump up my SIPP contribution this year to more than the £3600 my non-earning self has been putting in, which will mean I get an extra 20% payrise from the taxman simply by washing this through the SIPP. I will stay below the personal allowance and am a mustelid of sufficiently grizzled fur as to be able to use flexible drawdown. Once you earn more than the personal allowance then that’s a waste of time in a money roundabout [ref]until you reach the HRT threshold[/ref], but an Ermine is far too idle to put in enough work to earn the personal allowance.
Now I’ve managed to get through my working life without ever having filled in a tax return because I was a PAYE wage slave and I can’t say the prospect thrills me – I’ve turned down odd jobs in the past because I couldn’t face that. But the win on SIPP and State pension shifts the needle on the dial enough to make this worth doing, at least for one tax year, where I will put my entire gross pay into the SIPP, although it will only cost me 80% of my gross pay. It’s only going to be about 5k, but it’ll work hard for me, and I get to spend the remaining 1k on beer and crisps… It’s interesting to observe that last year the Consolidated Dividends dept of my ISA almost worked as hard as I will this year 😉
There’s something deeply futile about working post FI
What’s the bloody point? I’m still of that opinion – I have to take this wedge and lose it in a SIPP, purely to game the system and win the £1000 I can’t be arsed to juggle 20 bank accounts for. One of the things I learned in the seven lean years[ref]I know, it’s six, but I will only start to draw this in the next tax year[/ref] from 2009 is what enough looks like. I’m not currently there yet, but once this SIPP starts paying out on average £15k[ref]when I toss in the PCLS spread out over five years, assuming it isn’t recruited to save my sorry ass from a market swoon[/ref], then there’s no point in earning more from then. No consumer shit is worth spending more time in an office, and above all else, I don’t like working for free, particularly for the taxman. End of – so as soon as I draw my main pension I need to cease earning any income from work ‘cos it’ll all be taxable.
OTOH if I don’t manage to work out how to transfer this SIPP I might consider working enough to stall drawing my main pension for another year or two, then take an actuarial hit and invest the AVC tax-free PCLS. One of the other things I learned in those seven lean years is stay flexible, nothing ever turns out as planned.
National Insurance deliberations
The other place this is useful for me is that I only have 34 years of NI contributions. I need 35 for a full State Pension, should such a mythical beast still exist in 12 years. A lot of those years are contracted out, but 10 aren’t. I need one more year, and it so happens that buying NI contributions as a self-employed ‘striver’ is much cheaper (£2.80 × 52 weeks ≅ £146 p.a.) than buying Class 3 voluntary contributions as a gentleman of leisure (£14.10× 52 weeks ≅ £733 p.a) , because the Government fetishises earned income over rentier income, the Calvinist devils. Investing £146 to get a potential 2.5% uplift in State Pension sounds like a punt worth taking to me. The Government is going to have to sort its shit out with this ‘working is good for you’ prejudice if robots really do start to drive jobs out of the economy.
There are, however, other subtle issues which I don’t really understand. To be honest, anybody with a fair amount of DB pension should basically appreciate their good fortune and maybe not carp like this about losing out, because you’re losing out something you wouldn’t have got had the change not been made, and FFS there are a whole load of problems to do with pension saving you just don’t have compared to everyone else. But yes, if you contort yourself in knots you might make a case that under some circumstance you lose out. The issue is described in more detail here, but boils down to
The old basic SP without add-on SERPS etc was £116pw if you got the full whack, and you should not lose out by the move to the new system, even if as a teacher you were contracted out of the State Pension earning related bits. That sets a lower floor, assuming you have 3o years of contributions up to next tax year, but it’s not inflation-linked. Your DB pension provider has to compensate for the loss of SP up to some arbitrary inflation linking – about 3%, and historically the compensation over that has been the inflation-linking of the old SP. But that nominal £116 is frozen at the change, and the contracted out years are held against you.
The new SP is £151. Even if I hadn’t been contracted out, because I am a year short I’d lose £151÷35×0.8 (0.8 because I’d be 100% taxed on any extra, reducing the loss) or £3.45 p.w. which is £180 p.a. That will be sorted, but I will still lose (151-116)×24(contracted out years)÷35×0.8=£19.2 p.w. which is nearly £1000 p.a. for being contracted out, and the effective value of that deduction will increase with inflation.
I therefore have the opportunity to add 80p a week to my State Pension (£41.60 p.a) for each year of NI I pay after April 2016. It’s not actually clear to me whether this year (where I would not be contracted out) counts for contracted in years under the old system, where it would punch higher than the new system (due to 1/30th rather than 1/35th). If it won’t then I will choose not to pay it this year from the small profits threshold regulations. Although £42 a year isn’t much, I may choose to consider myself working for some small amount and electively invest £150 NI a year for the next five years as I have a reasonable chance of living for three years beyond 67 (after which I’d have my money back) and after that I’d be in extra time.
The ONS is right. An Ermine’s human capital is shot – it’s not worth training older guys…
The ONS have officially declared older workers a waste of space. I will wear my badge with pride 🙂 It was that Monevator fellow that stated young people are already rich, and the ONS is right behind him
Figure 4 shows that the stock of human capital is disproportionately concentrated in younger workers. For example, 41.4% of the working age population are aged between 16 and 35 but this group embodies 66.1% of the human capital stock, showing that being relatively young and having more years of paid employment remaining more than offsets the effect of having higher earnings whilst being relatively old.
Arguably a 21-year-old Ermine leaving Imperial College in the teeth of Thatcher’s first recession carried the potential of all the putative earnings of an Ermine all the way up to retirement in 2012. Since a pension is deferred pay it’s hard to know where to allocate the next 25-30 years of pension ‘earnings’, after all I have to live that long to get it. As for the dividend income from my ISA which is effectively my DC pension, presumably the ONS looks at investing returns with the same dim view as Osborne looks at leveraged Buy to Let – as a tax on the otherwise productive activity of the economy.
I was looking at improving my competence at this bookkeeping lark. 20 years of running Quicken and about 10 years of running a multimedia limited company on the side taught me the basics of doing this, and although I used to submit VAT returns on paper the online version asks the same things and numbers the boxes the same as over ten years ago.
So I take a butcher’s hook a the AAT. Now the Ermine is an individualistic and solo learner, I am happy to read books and try and take the AAT test which is a modest investment of the odd hundred pounds. But it appears that you can’t self learn all of it and have to involve a training organisation, and all of a sudden the costs skyrocket. I want the learning but I don’t want to pay the training fees, and now that ONS chart makes sense. There’s no point in investing in training an Ermine because there’s no decent return in it compared to the school leaver. I’d have to set up in business and start doing other people’s books and that sounds far too much like work to me.
The other thing is the pace of the CBT e-learning is terribly slow. I was totally unaware that businesses could transfer the risks of customer invoices to banks, and it appears in two ways – either debt factoring or invoice discounting. With one you get the customers to pay a third party, who advances you a lump of the invoice as they chase the customers, with the other you get a credit line which is a certain percentage of your outstanding sales invoices. The e-learning takes five minutes to play-act out what I’ve just described in two lines. I really hate the trend towards video for instruction nowadays – it forces a dreary pace on things, you can’t speed up or slow down with bits you get or don’t get, and unlike reading you have to grind along at the pace of the slowest learner. Likewise for the solvency sketch, it’s pretty ‘king obvious that you run out of money if you have to pay people faster than you get paid. I believe I would have jumped to that even as a callow late 1970s school-leaver.
Much of this training seems targeted at school leavers who have little idea of what a business does. I am okay on that, it is the peculiar conventions of bookkeeping and accountancy I am unfamiliar with. I can make the numbers add up, identify if things are costing more to make than they earn from analysing the classifications and the flows of money in Quicken. I can fill in the VAT returns and the annual accounts, again from understanding the flows of money.
But I find the specialised lingo counter-intuitive – take this for example. WTF is an increase in assets the same sort of thing (a debit entry) as an increase in expense? If I buy a load of shares my bank balance goes down, yes, but I have something of value to show for it. Whereas if my expenses increase, my bank balance goes down but it just gets to piss me off. This really isn’t the same thing at all.
However, I solved the problem for the princely sum of £0 with this Open University book on accounting free on Kindle. Apparently years ago in the 1600s the Italians decided assets increasing were classed as debits, and we’ve been stuck with this bizarre convention ever since. Which explains why I kept on failing those AAT tests 😉
You do not need expensive classroom training for many things. Sometimes an enquiring mind and having learned how to learn will do, so the ONS can take their human capital and stick it where the sun doesn’t shine as far as this human capital deadbeat is concerned.