What training companies won’t tell you
Here are some things that driving instructor training companies often “forget” to tell people.I really wish someone had told me these things before I started.
You pay TWICE the amount of tax you owe each year
As if having to save £3000+ for your training wasn’t bad enough, you’ll also need thousands more to pay in advance to HMRC (Her/His Majesty’s Revenue and Customs). Let me explain roughly how tax works.
When you are self employed you get a letter each April asking you how much you have earned in the last year. You must (by law) tell them and provide supporting accurate documents such as bank statements, fuel receipts etc. The problem is that when you’re self employed you have to pay the amount of tax that you owe twice each year.
This is known as payment on account. It was designed to help people budget better for their income tax but the tragic irony is that it actually puts many small firms out of business just as they’re getting going!
Imagine that you’ve earned a total of £20,000 from last April to this April. You’re allowed to deduct business expenses from that (things you couldn’t run your business without) so let’s knock off £5000 for a car and fuel and your taxable amount is £15,000. You get the first £10,000 (roughly) tax free and then pay around 28% on the rest (20% tax and 8% national insurance). That would give you a tax bill of around £1400 but you have to pay double that (£2800).
The amount of money you have paid over what you owe (the extra £1400) goes into a holding account. When your next years tax bill comes around and you owe £1400 again they will take the £1400 out of your holding account and you then pay £1400 again PLUS 50% of next years amount (£700) in January and £700 in July.
If your income goes up a lot you pay more and if it falls you get money back. You’ve probably heard of people getting tax rebates, well that’s what this is – when you have overpaid and are owed some back due to earning less that year or tax thresholds increasing. There’s more about repayments a few paragraphs down.
The problem is that you cannot choose whether or not to pay this amount that goes into a holding account – it’s the law. There are only two excepetions, firstly if the amount of tax you you owe is under £1000, in which case you simply pay that and nothing else. That’s unlikely though as your income would have to be very low (under roughly £12,000) to only pay that much.
The only other exception is if you can prove that your profits next year will be far less, making your tax less. That is very tough, you can’t just guess or say that to get out of paying. You must be in extreme trouble like bankruptcy or already having missed payments on your credit agreements.
If you think it sounds bad then consider that back when I started up the payments on account were huge due to the tax free amount only being around £4000 in 2003. Some new driving instructors we getting hit with tax bills of £10,000 or more!
The way that tax works is set to start changing from 2015. You are now able to pay on a monthly pay-as-you-go basis where you can log in to your tax account, type in what you’ve earnt that month and pay the tax on it right away. It’s much the same as if you were employed and you no longer have to come up with these huge amounts every six months.
If you want to read more about all of this then click here to read about payment on account on the official Inland Revenue site.
Self employed stigma
Whenever you tell someone you’re self employed in a social situation, they’re usually quite interested. They’ll ask you what business you have, how long you’ve been doing it, how you got into it. When you tell a bank they just don’t want to know! As soon as you say you’re self employed the barriers go up, alarm bells ring and you get treated like a leper.
This is because being self employed is seen as a HUGE risk by lenders. Your income isn’t guaranteed, you have no big company behind you. Remember that even if you work for a big driving school you are still self employed. There is no such thing as an employed driving instructor. No backup, no support, no sickpay. You’re a one man (or woman) band on your own.
This is a concept that many people struggle to understand. You cannot work FOR a driving school. You don’t work WITH the school. You are alone, they are merely an agency that attempts to supply you with work. It’s not guaranteed and you are not employed.
You’ll come across this prejudice everywhere you go. Call up a company and say you want a loan and they’ll be only too happy to help until you say that you’re self employed. At that point you may as well just put the phone down because you’ve got no chance. There are companies willing to help but you’ll pay a few % more APR for it.
If you’ve been self employed for years and years and one day end up with no work then you’ll get no benefits. That’s right – self employed people can’t claim benefits! It’s mad but it’s because you could just be saying that you have no work when you really do. I’ve never been in that position but i’ve heard of instructors with 10+ years service and 10+ years of tax returns and accounts that get refused any benefits at all.
It’s daft really because more and more people are becoming self employed these days. Who wants a boss? Who wants to work for someone else? Not me, but when you’re self employed the whole world hates you.
You can’t get a mortgage, credit or rent property for the first 3 years
As mentioned above, it’s tougher to get credit when you’re self employed. If you are thinking of moving home then i strongly recommend doing it before becoming self employed, although places usually ask if you have any plans on changing jobs when you apply for something.
All banks and mortgage lenders will ask to see a minimum of 2 years of accounts signed off by a chartered accountant. Many ask for 3 years. During the first 2 or 3 years that you’re building up these accounts, nobody will touch you for anything.
There was a time when i had no accounts and rented a flat, The only way i could do it was to pay 6 months rent up front with a large deposit.
Remember that your accounts are done a year behind when you’re self employed so for 2 years of accounts you’ll need to have been doing the job for 3 years. It’s really tough for those first few years!
You probably won’t make it
The vast majority of people who start to become instructors simply don’t make it. I once saw an article in a magazine at a test centre where they followed people over the course of two years, right from the first time they applied for an ADI1 starter pack through to their first standards check.
How many of them made it to and passed their first standards check? 5%. Yes just five percent, that’s five people out of every hundred that lasted for the first two years. Contrary to popular perception it is not easy to be a driving instructor. Many won’t make it. Many will fail. Many will give up. Sorry to sound negative but that’s just the raw truth.
So why do so few make it? Many fail the exams and don’t even get to be an instructor. Of those that do make it, many had been sold a dream of earning £30,000 and they realise after a few months of doing the job that it’s not going to happen and they just drop it. Some get killed on the job. Some can’t stand the stress and road rage. Some won’t get enough (or any) work.
The most common reason though is simply bad training which doesn’t prepare you for the exams or the job.