Tax on self-employment income while remaining employed


“I have a full-time job, but I have started doing some freelance work in my spare time. What do I need to do about my taxes, how much tax will I have to pay, and when?”

All figures have been updated for businesses starting in the tax year ending 5 April 2014, who will be required to submit their first tax return by 31 January 2015.

Have you started a business, or is it just casual income?

There are some small differences in the tax system between running a business (also known as “trading”, being “self-employed”, or being a “sole trader”), or just having some extra casual income. As everyone’s situation is slightly different, there are no hard and fast rules to help you decide; you will have to make your own judgment. These are the sort of legal grey areas that the courts have been arguing over for decades, without coming to a definitive conclusion that can apply to everybody.

Broadly, you are likely to be running a business if you have a regular, organised activity with a profit motive, which continues for at least a few months. If the work is one-off, or very occasional (say, a few times per year), or not very organised, or of very low value (say, under £2,000 per year), then it might qualify as casual income.

If you are unsure, and do not want to risk the consequences of making the wrong choice, you cannot go far wrong by treating it as a full business.

You do not need to form a separate limited company in order to do any extra work outside your main job. Running a business through a separate limited company is a much more complicated set-up, and beyond the scope of this page.

Do you have to declare your extra income?

Whichever type of income it is, if there is tax to pay as a result of it, there is a legal requirement to notify HMRC (”the tax man”) about it. This is highly likely if your combined income from employment and your other income is over the tax-free Personal Allowance of £9,440 and there are no other complicating factors. You cannot wait for HMRC to take the initiative and get in touch with you first.

It makes no difference if you are already paying tax on your employment income through PAYE. Tax is always calculated on total income, and there are no allowances or registration exemptions specific to each type of income. For example, if your employment earnings are over £9,440, and your business/casual income is only £500, in most cases there will be tax to pay on that income and so you must declare it.

How to declare your casual income (if it is not a business)

Self assessment

This is a relatively simple matter of registering for Self Assessment for the first tax year in which you had the income. You can do this by completing and submitting the paper form SA1, or by using this page on the HMRC website. The time limit for registering is 6 months after the end of the tax year in which you first had the income.

If you are already registered for Self Assessment and completing tax returns for some other reason, there is no need to register again.

Shortly after the next 5 April, you will be sent a notice to complete a tax return for the tax year just ended. To declare the casual income, include it in the “Other Income” section. If you are submitting the tax return on paper, assuming the box numbers stay the same, it goes in boxes 16 and 17 on page TR3. You will also need to complete the Employment section with details of the income from your job, as this is important in getting the tax right for the year.

The casual income is then calculated and taxed in the same way as business income, as described below. It is not subject to national insurance.

How to register a new business with HMRC

It is currently HMRC policy that all new businesses should register with them, regardless of size and even if there will be no tax or national insurance to pay.

You only register as a self-employed person once, regardless of how many different businesses you have.

Registering is straightforward, and can be done online on this page of the HMRC website.

Registering as self-employed in this way does not mean that the tax office will tell your employer about your sideline business, as your own tax affairs are confidential. Your PAYE tax code will not need to change, unless you want it to. See: Will my employer find out about my business?

Self-employed people usually have to pay Class 2 National Insurance contributions at a rate of £2.70 per week (in practice they are paid monthly or 6-monthly). However, if expect your self-employed income to be less than £5,725 per year, you will can apply for an exemption. See more about Class 2 National Insurance.

As someone with self-employment income, you will be sent a self-assessment tax return in April every year, on which to report your total income (both employed and self-employed) for the tax year that has just finished. You will need to keep records of your business income and expenses so that the tax return can be completed. You can choose to prepare your business accounts to any date each year, rather than having to use the anniversary of when the business started. 31 March or 5 April are the simplest options for tax purposes, so most people choose one of those.

How to work out your extra taxable income

There is nowhere near enough space to cover every accounting adjustment and allowable expense here. Generally, expenses are allowed if they are incurred for business purposes. For expenses with joint business and private use, such as telephone and motoring expenses, you can usually claim the business proportion, which might be 10% or 25% if you also have a full-time job. You can also claim a small proportion of your household running expenses, to cover using your home for business purposes. The exact proportion will depend on whether you have a dedicated office, or just a desk in the corner of a multi-purpose room that you use once a week for admin.

The purchase of equipment, which is generally more expensive items that are going to stay in your business for more than a year (rather than for sale as stock), is not a business expense. Instead, tax relief is given in the form of capital allowances. For most items, this simply means claiming the same amount of tax relief, but under the heading of Annual Investment Allowances. With cars, the position is more complicated.

When working out your profits on which tax is payable, 2 common mistakes are:

1. Thinking that if all income is reinvested back into stock, there are no profits and so no tax to pay. In fact, buying stock is a payment, but not an expense. It only becomes an expense when you no longer have it, usually because you have sold it. You generally pay tax based on profits, not payments.

2. Thinking that if all income is left in a business bank account, there are no wages/drawings, and so no tax to pay. In fact, with self-employment there is no distinction between business money and private money, so there is no question of paying yourself a “wage”. You pay tax on profits as they are earned, regardless of how you transfer your own money around.

How much will the tax be?

In working out the tax, you generally pay tax on your employment income through PAYE on your payslip each week or month, and tax on your business income based on the amount of profit (not turnover) that gets entered on your tax return each year.



Your tax-free Personal Allowance usually gets allocated to your employment, so the tax on your self-employment will be at your own highest tax rate. If your total income is below £41,450, the tax on your self-employed income will be 20%, but any income over £41,450 will be taxed at the higher rate of 40% (income above £150,000 may be taxed at 45%).

Additionally, you pay Class 4 National Insurance on your self-employed earnings at a rate of 9% on any income between £7,755 and £41,450 in a year, and at 2% on any income over £41,450. If your combined income goes over £40,000 in the tax year, the amount of Class 4 NI payable starts to be restricted (more details).

It is useful to know what percentage of self-employed earnings should be set aside for tax, but as seen, this is not possible. The amount could vary from 20% to 59% (possible, but rare). For someone with average earnings, we recommend setting aside around 25%, and then completing the tax return shortly after 5 April each year so that you get several months’ notice of what the final liability will be.

When will the tax have to be paid?

The total tax and Class 4 National Insurance on your self-employed income (together with any other minor tax adjustments that get sorted out on the annual tax return) is usually payable by 31 January after the end of the tax year. So, if you started your business in October 2013, this falls in the tax year to 5 April 2014, and the tax on the business income up to 5 April 2014 will be payable by 31 January 2015.

If the tax and NI payable from your tax return is over £1,000 per year, and this total is more than 20% of your total tax paid for the year, then you may have to start making advance payments on account of tax every 6 months.

Alternatively, provided your tax return is submitted online by 30 December, and your combined liability for 31 January is less than £3,000, you can pay the tax by having it deducted from your salary via PAYE throughout the following tax year. This will result in your tax code changing, which will signal to your employer that you probably have another source of income. If you do not want the tax to be collected this way, tick box 2 on page 5 of the tax return before filing it.

Once the tax return is submitted, you will receive statements in the post confirming the amount of tax payable and explaining how it can be paid.

Simple example for first year of business

Annual salary = £20,000. Assume a standard tax code of 944L, with no complications.

The business starts in September 2013. Profit from self-employment in year to 5 April 2014 = £10,000.

Tax on self-employed income at 20% = £2,000.

Class 4 National Insurance on self-employed income at 9% on earnings over £7,755 = £202.05.

Combined amount payable by 31 January 2015 = £2,202.05.

In addition, as this is more than £1,000, and it is more than 20% of the total tax paid for the year, extra payments (on account) of £1,101.02 (50% of the January payment) will also be required in January 2015 and July 2015. These payments can then be deducted from any tax due in January 2016.

Alternatively, the £2,202.05 liability can be paid through PAYE evenly throughout the 2015/16 tax year.




358 Comments (oldest first)

  1. Mark Lawton

    I have started self employment whilst employed. I will be earning £4000 a year self employed, so I am exempt from NI etc. I have filed out the forms, and been accepted for this exemption.

    I started in March 2011, registered self employed while still employed on PAYE elsewhere.

    I don’t understand though in my PAYE employment; my tax code has suddenly changed from 547L to 747L.

    When I got my payslip I had about £13.00 less per week in my pay from PAYE employment.

    As I will self-assess the self employment, what is going on with my PAYE job?

    I thought it shouldn’t affect it, as I am self assessing the self employment separately.

    What has happened there, and it is right, as my colleagues are all on 547L? People on more money are still on this code too.

    What has happened there then? Do I need to query it?

    17 October 2011

  2. admin

    Was it April when your tax code changed? They usually change every April for everyone.

    If your tax code goes up, your tax deduction should go down, but it does depend on the exact circumstances and the year-to-date figures.

    Have you received any PAYE coding notices?

    747L is the standard tax code for most people. If you do not think it is right, query it.

    17 October 2011

  3. Mark Lawton

    Thanks for the reply,

    No it wasn’t in April that it the tax code changed, it was only last week in the beginning week of October 2011.

    I tried querying it, but the call went around in a circle and I ended up back to the main menu. I will have to ignore some of the menu items next time maybe to bypass the automated message and get straight onto an operator instead of being pushed back to looking online. That answer wasn’t there on the HMRC website or I couldn’t find it.

    Another time I was holding on the phone with music for 15 minutes with no reply!

    What is the best time to ring them between the “8 to 8″ time-slot I wonder?

    Maybe I should go there and visit, or do you have to take a ticket and wait in long queues? I think I remember waiting 4 hours to be seen to in the early 80’s!

    Mark

    17 October 2011

  4. Mark Lawton

    P.S.

    I did get a letter from the HMRC mentioning the change of tax code the week before at the beginning of October 2011, but at the time I thought nothing of it. I still have the letter though.

    Then the next pay slip was different after this, £13 a week worse off!

    I don’t get why it has changed though; or are they second guessing my income for self-employment at the same time until I do the online assessment?

    Mark

    17 October 2011

  5. admin

    The letter will explain what has happened and why.

    17 October 2011

  6. Mark Lawton

    I had a read of the letter, and I am none the wiser to be honest.

    Looks like It won’t hurt to ring them up.

    I wished I could email them. I wonder if anyone knows a “back door” email address so I can get my question through clearly, and then get a proper worded answer, as verbal on the phone can be a bit vague sometimes.

    I tried a few more time but haven’t been successful in getting through on the phone so far. They must be quite bogged down with queries then.

    Thanks for the chat about this so far anyway.

    Mark

    18 October 2011

  7. Mike Galley

    Hi there, just after a little information. I currently work for a company, earning £18,000 a year. I will be starting a business on the side, initially just at weekends till it picks up. I have bought the domain name I want for the business so I can set up a website and email address etc for my business. Do I have to register with Companies House? It will just be me working at the business as self employed. I can’t predict what I will earn from this new business yet, I understand I will have to pay my own NI contributions and tax, and that the tax free allowance will only apply to my PAYE job, so really all my earnings for my new business will be subject to tax, is this right?

    24 October 2011

  8. admin

    Only limited companies and Limited Liability Partnerships need to register at Companies House.

    Your understanding of the tax is basically right.

    24 October 2011

  9. william

    Hi - I earn 48k and pay 40% tax and NI in paid employment through PAYE. I’m going to register as self employed stating start date as 1st May 2011, I have made income of £450 to date and spent £5k on asset/expenses. I continue to spend more on assets / expenses and anticipate reaching 10k on this but hope to make a good return on my investment in year 2, I don’t expect income to generate more than 1k tops by April 1st 2012. My understanding is I need to register as self employed before 31st January 2012? I also need to apply for NI exemption as I pay so much through my current employment. I, under the impression I didn’t need to register in first 3 months and there is no penalty for this in my circumstances. I’d be very grateful for your advice.
    I believe I am eligible for a tax rebate? Would this be for the amount of money I spent on expenses/assets? Can I get this back in April 2012 ? Many thanks

    7 January 2012

  10. admin

    The latest you can register is 31 January 2013, but HMRC prefer that you register promptly, and there is really no good reason to delay.

    You can apply for NI exemption using form CA72B.

    You can offset your self-employed losses against your employment income to generate a tax refund, but based on £10K of expenditure before 5 April 2012 this will be in the region of £3K and obviously not the full £10K. The earliest you can apply for this is in April 2012 if you register for self assessment before then and then file your tax return in that month.

    8 January 2012

  11. Matthew

    Hi - I’ve been reading through for some advice, and although everything I’ve read is very helpful i would just like to clarify the answer i am looking for. I am currently employed (paying my tax and NI through PAYE) earning around £25000 per year. Around July 2011 i was asked to carry out some small work (a total of £600) which i have done. At the time i read varying articles regarding freelance work, and haven’t registered as self employed and i have not taken my freelance work any further. I would just like to clarify how i should pay tax on this, without going through my current employment, to ensure i am up to date with it. From what i have read i feel i should have registered self employed within 3 months (what would be the consequences of not doing this now - the job equated to 3 invoices for the work and no other work has been carried out since, with no intention of carrying out further freelance work in the near future). Your help would be very much appreciated.

    9 January 2012

  12. admin

    As this work was a small one-off rather than an ongoing, organised business, it probably qualifies as casual income. In this case, request a tax return for 2011-12 by completing an SA1 form, then disclose the income in box 16 (if the layout is the same as last year).

    10 January 2012

  13. vacys

    Hi, I’ve been registered as self-employed for last 4 years and always paid NI. Also become employed in 2010 Jan and never canceled my self employment and haven’t done any “private” work for 2010-2011. Now when I’m trying to do a tax return online and input that I was employed at that year and no income was from self employment at the end it says “Total tax repayable to you for 2010-11 £856″. Why does that happened? Do I did something wrong while filling self assessment o because my Personal Allowance gone up because of paying NIN as employment and self employment? The tax code on P60 is 647 M1. Thank you.

    10 January 2012

  14. admin

    It is impossible to say for sure without a lot more information, but my best guess is:

    1. You have been making 6-monthly payments on account of tax due to your self-employed income.

    2. Now you are employed and no longer have self-employment income, you are paying tax each month rather than through your annual tax return.

    3. Accordingly, the payments on account have turned out to be excessive and so will be refunded to you.

    10 January 2012

  15. Rob

    Hi,

    I’m due to finish a part-time degree in photography in April, and as of last august, started doing a few small jobs as part of a work experience module. I was thinking of starting up or registering myself as a business, when my course ends after our final exhibition in April. I anticipate that the one client that I was paid by during the module, is going to continue to give me work, as well as obviously getting new clients. When should I register and when would I need to start thinking about tax returns. I’ve read so many conflicting pieces of advice, even from the HMRC site.
    I want to make sure that I start up properly with a clean book right from the start.

    regards,
    Rob

    10 January 2012

  16. admin

    The regulations concerning the administration of tax are complex and always changing, as are HMRC’s interpretation of them.

    It sounds as though you have been self-employed since August 2011. To be safe, register very promptly. There is nothing to be gained by delaying, and even if it turns out that you earn next to nothing, the worst that will happen is that you will have to complete tax returns showing no tax to pay.

    Your first tax return will be issued in April 2012.

    10 January 2012

  17. Mike

    Hi, I’m in full-time work (approx 40k a year) but started an affiliate marketing website of my own almost three months ago. As of yet, the website hasn’t made any money at all. At this stage, is it necessary for me to register as self employed/sole trader, or should I wait until I’ve made my first sale? Many thanks.

    17 January 2012

  18. admin

    You should register when the business starts. This is not necessarily when you make your first sale. It should be when you start actively marketing the business.

    17 January 2012

  19. Bill

    I became unemployed in August 2011 and set up as a sole trader a few weeks later. My first return will be for the tax year April 2011-April 2012. Do I just calculate it from my time as a sole trader ie August 2011-April 2012 or does it include my income from April 2011-August 2011 when I was in full time employment but not self employed?

    17 January 2012

  20. admin

    Your tax return for 2011-12 will need to include all taxable income received in that tax year, so it will include your final months of employment on a separate part of the form. Your self-employment accounts will start when that work started in August 2011.

    18 January 2012

  21. m jade

    Hi

    I’m just filling in my first online tax return as self-employed.

    As I was also employed and on PAYE during the same time I started doing self-employed do I still have to put this employed income in on page 1 of the tax return, even though I have already paid NI and tax on it?

    Thank you

    21 January 2012

  22. admin

    Yes, absolutely. It is potentially very important in calculating your tax.

    21 January 2012

  23. Jackie

    Hi

    I am currently working part time earning £13,000 per year and have started working for a personal loan company making approx. £50 per week, however I have petrol, phone calls and a few other expenses per week which leaves me with approx. £30 per week. Should I register this March as self employed and how much on average per week should I keep to pay NI and Insurance?

    21 January 2012

  24. admin

    You should register as self-employed straightaway.

    You should allow about £6 per week for tax, being 20%, and your self employed income is not high enough to pay NI (you can apply for exception from Class 2 NI).

    22 January 2012

  25. Carolina

    I was employed till Feb of 2011, during the next 3 months I was unemployed and I became self-employed in June 2011. I received a letter from HM Revenue which says that I have to send my tax return before 31 of January, should I send from June 2011 till 31 of December or is a mistake in the database and the right date to do it on 31 January of 2013?

    24 January 2012

  26. admin

    Regardless of the reason, it sounds like HMRC have requested a tax return for 2010-11, and this must be filed on time or you will get fined. Include your employment income (from your P45) and the start of your period of unemployment, but nothing after 5 April 2011.

    25 January 2012

  27. Miguel

    I received a letter from HMRC saying that I have to do a tax return because it exceeded my personal allowance. I would like to know which is the amount the HMRC take into account for that, because during this year I made £8570, they discount £1551 for taxes at the end I received £7019 which is less of the amount of the allowance. should I pay extra taxes?

    25 January 2012

  28. admin

    The relevant amount is the amount before tax. Any deductions made during the year on account of tax are not deductible in arriving at your taxable income, but you will be given credit for those deductions against your eventual tax liability.

    25 January 2012

  29. Gavin

    I am currently employed ( salary £15500 ) and will remain so but considering starting a small business on the side. I will be selling mainly imported products and don’t believe that profit will exceed £3000.
    I also don’t intend on taking a salary from the business in the first year in order to build the business up.
    How will my business be taxed on importing goods, sales and salary.

    25 January 2012

  30. admin

    Any “salary” you pay yourself is irrelevant, as when you are a sole trader there is no separation between you and the business. You will be taxed on your profit before any payments to yourself, at 20% as above.

    25 January 2012

  31. Scott

    I have been self employed since June 2011, when do I have to fill out a tax return? Also I do not earn more than 10000 a year, I was told the first 6k of earnings is not taxable? Is this correct?

    26 January 2012

  32. Admin

    1. Any time from April 2012.

    2. The tax-free personal allowance is £7,475 in 2011-12. This covers your total income, not just self-employed.

    26 January 2012

  33. Jon

    Hello. I am currently employed full time, earning an annual salary of £37k, company pick-up with unlimited private fuel, 6% pension etc, etc.. However, a company i used to work for in Holland has asked me to represent them in the UK. This will gross me approx £20k per year in the form of “commission” payments or “finders fees”.. It all sounds perfect right? Well, it is.. a good additional income for very little effort. However, every penny that comes in to the new company will be profit. My question is, how do I get the money back out again..? I would prefer not to pay the tax man 40% of everything I make if I can help it! I would register as a sole trader and obviously inform HMRC.. Any advice would be most welcome..

    26 January 2012

  34. Admin

    If you are running the new business as a sole trader, “getting the money back out again” does not apply. You are the business, so the money is immediately yours as soon as it is received from Holland, and taxed accordingly.

    If you really wanted to avoid 40% tax, I suppose you could run the business as a limited company, pay no salary or dividends, then start taking the money out of the company once you have retired.

    26 January 2012

  35. Jon

    Many thanks for the excellent advice. I am comfortable financially and did think about leaving the money in the business as a nest egg. Once again, many thanks and i now have some food for thought.

    27 January 2012

  36. jennie

    hi, i have been registered since last September but haven’t received any info on when i should pay my NI. Can you please tell me? i don’t want to find i owe them loads!! I’m a sole trader, earning below the the £7500, but not sure what to do? many thanks.

    27 January 2012

  37. Admin

    You should have registered for Class 2 NI and made arrangements to pay it when you registered as self-employed. If not, you can use form CA5601 to start a direct debit now.

    Class 4 NI is paid with your tax, your first payment will be due in January 2013.

    27 January 2012

  38. marg

    Hi there, reading great advice from you, just what i am after!
    I am self employed, part time. salary of £13,995. I have just done my Self ass. calculations and it says:

    “Total tax, Class 4 NIC and Student loan due for 2010-11=£1,749″
    It then goes on to say this:
    Plus
    “First payment on account for 2011-12 £874.60″
    So the total to be paid on 31st Jan is £2623..Then a future payment of £874 in July…

    My question is this.
    It seems like i am already paying the tax for 2011-2012 with these two latter instalments. I did this last year also, in theory paying in advance an estimate for 2010-2011 tax (the tax year i am paying now). I feel like i am paying twice the tax that’s needed. Is this correct or do i deduct the estimated tax i paid during the year (ie the first and second payment on account for 2010-2011 which was £1700 in total) from what is calculated at the end of this Tax year? And if so, which section does it go under.
    Advice greatly appreciated!

    27 January 2012

  39. Admin

    You deduct the £1700 already paid from your liability due on 31 January 2012. It should be entered towards the end of the tax calculation part of the process, and the exact wording will depend on what you are using to file your return, but hopefully you will see it there. If you cannot find the box for it, it is not the end of the world, just pay the correct amount and HMRC will figure it out.

    27 January 2012

  40. ian

    I have a full-time job currently earning around £30,000 but am considering turning a hobby into earning me a bit of extra cash, i understand i have to fill in a tax return and register as self employed even tho i am currently working full-time is this correct ? also do need to pay extra national ins, once i register can i then advertise for more work ? i have also heard if i keep receipts for materials and equipment i purchase i can then deduct off my tax bill. thanks

    29 January 2012

  41. Admin

    “I have a full-time job currently earning around £30,000 but am considering turning a hobby into earning me a bit of extra cash, i understand i have to fill in a tax return and register as self employed even tho i am currently working full-time is this correct?”
    Yes, of course, did you not read the article?

    “also do need to pay extra national ins”
    Yes, as explained in the article.

    “once i register can i then advertise for more work ?”
    Of course, why not?

    “i have also heard if i keep receipts for materials and equipment i purchase i can then deduct off my tax bill”
    Allowable business expenses are deducted from the profits on which you pay tax. The government do not fully reimburse you for all your business expenses.

    29 January 2012

  42. Bobby

    In 2010-11 I did some freelance work in addition to my full-time job (PAYE). I earned £3,000 and so registered for self-assessment. I’m now doing the SA and am wondering where I declare my PAYE earnings and tax from my 2011 P60? Which is the appropriate section/field?

    Thanks

    29 January 2012

  43. Admin

    In the Employment section.

    29 January 2012

  44. ian

    Thanks for clarifying that information it was really helpful, one other thing i would like to ask is would my extra earnings change my tax code in my current full-time job or would this be separate from the self employment earnings as i would not want it to affect my monthly wage ? must say really helpful web site at last somewhere i can go to get answers to questions.

    30 January 2012

  45. Admin

    By default, HMRC try to collect the tax through your salary in the following tax year by changing your tax code. If you do not want them to do this, tick box 2 on page 5 of the tax return before filing it and things will be kept entirely separate.

    30 January 2012

  46. Rachel Ward

    I’m very confused as my self assessment says I have overpaid 2.5k. I am not sure how I work full time and run a small business which generates about 7k a year gross. I don’t understand why I have overpaid?! Any ideas?! Does my full time employment affect it?!

    7 February 2012

  47. Admin

    Maybe you have paid payments on account of this tax, which turned out to be too high?

    Maybe you are paying an earlier year’s tax through your 2010-11 PAYE tax code, but did not make the necessary entry for that on your 2010-11 tax return?

    7 February 2012

  48. Chris

    Hi there -can you help? My employed earnings for the year are expected to be around £5000. I have been offered some part-time cleaning work. If my overall earnings for the year fall within my personal tax allowance of £7,475 do I still have to register as self-employed with the tax office?
    Many thanks
    Chris

    9 February 2012

  49. Admin

    You are not legally required to register, but it is HMRC’s preference that you do so. Registering now can help with some issues in the future, such as:

    Avoiding penalties for not registering when you should have done, due to an error;

    Avoiding difficulties if you have to register in a later year, if your income increases;

    Being able to prove your income for mortgage purposes.

    9 February 2012

  50. KARINE

    Hi,
    I am part time employed I earn 5000 pound per year and I am not paying any tax on that job. I started working as self employed which I earn 4000 pound per year, can you please tell me how much tax I will be paying?
    thank you
    Karine

    9 February 2012

  51. Admin

    (£9,000 - £7,475) * 20% = £305.00.

    9 February 2012

  52. Sarah

    I work part time, and between April 2011 until beginning of Feb 2012, I also did 3 hours a week at a private clinic, for which i invoiced them for.
    I earned about 3000 in total. I intend to do no more private work.
    should I have registered with the HMRC in April, I was unaware of this at the time.
    could I just fill in a self assessment form, as it was a one off, and I am not setting up my own business? Could I be fined for not registering within the 3 month period?
    Thanks for your help

    22 February 2012

  53. Admin

    Presumably you will have some tax to pay? If the income from your part time job was over £4,500, and you have no other special factors, then this is likely.

    Weekly income over a period of 9 months is unlikely to be considered casual or one-off income, so you should register as self-employed now. You might not consider that you “set up a business” in everyday English, but as you were doing self-employed work, for tax purposes this is the same thing.

    You will not be fined for late registration if you register now.

    22 February 2012

  54. Kev Welsh

    Hi
    At the moment I am employed full time PAYE & I also work part time which is also PAYE but I have the opportunity to go self employed in the second job. (as they pay more for this)

    My question is that, would it be worth my while changing from PAYE to self assessment due to the fact that one month I can earn £300 or less & another month £1000 or more ?

    Also would I be responsible in my tax / NI payments or would they be taken through PAYE in my full time employment ?

    Many thanks

    23 February 2012

  55. Admin

    Generally you pay a bit less tax and NI on self-employed income, but of course you are also giving up a lot of employment rights.

    If your annual tax bill is under £3,000, you can choose to pay it through your full time job, or pay it separately. Either way, you have to do a tax return every year.

    23 February 2012

  56. Anna

    Hi, great source of advice! I was employed till Feb 2011 and just after leaving job I’ve registered as self-employed. My earnings through PAYE since 6 April 2011 was about £10k (I paid about £900 tax on that) and I don’t expect any more income from my self-employment in this tax year. My question is, could I claim a tax refund? Thank You!

    23 February 2012

  57. Admin

    Do you mean you were employed until February 2012 (not 2011)?

    What was your tax code? On the standard code of 747L, the tax on £10,000 to February should only be about £630. It sounds like you have something else going on.

    23 February 2012

  58. Anna

    Sorry, yes, I do meant Feb 2012. My tax code is indeed 747L and exact figures are “Total pay: £10734.40″ and “Total tax: £900.20″. It does sound like too much tax for me… I’m self-employed now from Feb 2012 and do not anticipate any more income, I may have some business expenses only (which I’m not sure either if it would be better for me to do them still in this tax year or wait till next one-but that’s another issue). Best regards!

    23 February 2012

  59. Admin

    OK, that makes sense, your last payroll must have been run before 5.2.12.

    Assuming no self-employed income or expenses before 5 April 2012, your tax for the year should be (£10,734 - £7,475) * 20% = £651.80.

    You have already paid £900.20 so you will get £248.40 back when you complete your tax return which will be issued in April.

    You are supposed to record your individual business expenses in the year in which they are incurred, even if it would be better to claim them in a later year.

    However, you can choose to carry an overall business loss forward rather than offset it against your employment income from this year. This might be a better option, depending on the level of your income for the first year of the business.

    23 February 2012

  60. paul

    Hi i am registered as self employed as a handyman, but i am now also buying and selling on ebay, do i need to tell hmrc to update my profile about the type of business i am doing, or do i just fill in the self assessment form and declare everything then, i am keeping records of everything.

    24 February 2012

  61. Admin

    There is no need to update anything with HMRC. Just complete the self assessment form showing 2 different businesses.

    24 February 2012

  62. Paul G

    Hi I wonder if you could advise me. I have been self employed for 7 x years But in the last 6 x months been employed 40hrs a week. Although i have still carried out self employed work. Do i still calculate my profit and tax liability in the same way as i have done up till now or do i need to take account of the tax I’ve paid while being paye. Or is the employed work classed as separate from any calculations done as part of my self employment.

    27 February 2012

  63. Paul G

    Further to my recent question. my paye tax code is 747l although i am married with 1 x dependent. i also seem to be paying ni on my paye as well as my self employment.my paye take home earnings are £11,000. the tax deducted as part of my paye is £1512.00 and ni £923.00. My self employment earnings are £4000.I am not sure how i calculate my tax liability when I’ve got two jobs one self employed and one as employed. Any help much appreciated.

    27 February 2012

  64. Admin

    1. You fill in a tax return once a year, showing all your different sources of income and any tax that has already been deducted, in order that the yearly calculation of your tax liability can be done.

    2. In your situation with a 747L tax code, to simplify things you can assume that your self-employed income is taxed separately at 20% as your employment income is using the whole of your personal allowance. Your tax would therefore be £4,000 at 20% = £800.

    3. With self-employed earnings of £4,000, you are not required to pay Class 2 NI or Class 4 NI.

    27 February 2012

  65. Paul G

    Thanks very much for the advice, much appreciated. Do you think that the tax code I am on (747L) is the correct one for me? Many thanks, Paul.

    28 February 2012

  66. Admin

    747L is appropriate for you, but it does not matter that much as it all gets reconciled and sorted out when the tax return is done anyway.

    28 February 2012

  67. Lukas

    For start, thank you for great article, it was more clear than information on HMRC website.

    I’m all set up to start freelancing I even started working on my first assignment. If I register now, will I have to fill self-assessment tax return next month and then pay my taxes till January 2013 for just one month? Is it possible to move the date to pay tax for whole year rather than just one month?

    1 March 2012

  68. Admin

    You basically have 2 options, both of which involve you filling in a 2011-12 tax return in April 2012, and in January 2013 paying tax on about one month’s income:

    1. Prepare your first accounts to 5 April 2012, enter that on the tax return, and pay tax on those earnings.

    2. Prepare your first accounts to a later date, say 30 September 2012, enter that full period on the 2011-12 tax return, but only pay tax on the part of that income that falls before 5 April 2012 (apportioned on a time basis). This is more complicated.

    1 March 2012

  69. seana

    Hi there,
    Your site is fantastic (I particularly like how Admin gets a bit fed up answering the same questions over and over).
    I work part time, do self assessment for rental income from flats I own and am about to set up a business selling art work and glass I make myself. I think I will be NI exempt as wouldn’t imagine profit will be over £5000 but am wondering if there is a more tax-advantageous way to manage my artistic ventures than simply paying 20% of profit through my self assessment form?

    5 March 2012

  70. Admin

    Thank you!

    Self-assessment is basically just the system by which you communicate with HMRC about your tax liability. It does not affect the amount of tax or NI ultimately payable.

    I don’t think there is much you can do about the 20% tax on your self-employed income, but you could look at forming a business partnership with your spouse if they have unused tax allowances.

    5 March 2012

  71. Del

    Hi there,

    I’m registered as self employed but am also employed full time and pay tax via PAYE. This year I have spent a lot of money on equipment for my business to help it grow in the future, however this year it will have run at a loss of around £8,000. When I put this on my tax return would I be entitled to a tax refund, as my annual salary from my full time job minus that amount will come to less than £7k?

    Thanks!

    6 March 2012

  72. Admin

    In those circumstances a tax refund is likely, as long as you opt to offset the business loss against your employment income when you complete your tax return.

    6 March 2012

  73. t

    Hi there
    At the risk of things being repeated I’m sorry but am I correct in saying that if I became self employed from 27 Feb this year I will have to fill out a tax return even on the wages I was earning until Feb this year although I have already paid tax on them? Thank you.

    8 March 2012

  74. Admin

    Yes. Tax is worked out for each tax year as a whole, so your figures for the first 11 months of the tax year are very important. Obviously you will get credit for the tax already deducted from your wages.

    8 March 2012

  75. Susan

    I, like a few others on here am employed part time and someone wants to employ me as part time on a self-employed basis. Between the two I am looking at earning £11,000 at a guess, £400 from self employed, around £500 per month employed. which I worked out I would be paying around £370 tax on. I haven’t got as far as working out NI for self employed bit yet! I have 2 questions if you could help me that would be great.

    1. If I started in March and registered with HMRC like I will do, if the combination of my self employed earnings and employed earnings is less than the PA for this year will I have to pay anything other than my NI contributions as taken out by my employer on my payslip?

    2. Also I pay almost £300 a month as my graduate loan. I’m guessing this makes no difference but would like to know for sure?

    8 March 2012

  76. Susan

    Typo, £740 tax! Wish it was £370! I have used the proposed increased PA for 2012 to work that out though!

    8 March 2012

  77. Admin

    1. No, there is nothing else to pay, but you will need to apply for the exemption from Class 2 NI due to low self-employed earnings.

    2. That is not relevant to your tax liability.

    8 March 2012

  78. Sandra

    Hello, I am wondering if you can help. I am currently employed but plan to go on a career break this summer. I will still be on my company’s payroll but not earning. I am planning to start my own business during my career break, how will my self employment taxes / tax code be affected?

    16 March 2012

  79. Admin

    Tax is calculated on your total income for the whole tax year ending 5 April, so it does not matter if you spend 6 months employed then 6 months self-employed, or if you do them both at the same time. The situation is as generally explained above. Your tax code only needs to change if you opt to pay your tax through your payslip. None of this will affect the total amount of tax you end up paying.

    17 March 2012

  80. Julie M

    I am currently earning around £41000 pa, for my employer. I am also doing some consultancy work through an agency who are paying me and taxing me at basic rate. This extra work is probably going to be worth approx £15000 this year. Would I be better becoming self employed for this part of my income or to continue as an employee of the agency?

    23 March 2012

  81. Admin

    You don’t have a free choice about whether you are employed or self-employed for tax purposes. It is determined by the details of the arrangement between you and the person paying you (the real situation, not what it says on paper). To qualify as being self-employed, you typically need to work unsupervised, be paid according to tasks completed, and take on some business risk.

    23 March 2012

  82. Darren R

    Hi, Could you clarify something for me please?

    I am currently employed full time and pay 40% tax, I am also in the process of setting up a part time (trading as) business on the side. To get the new business up and running I have purchased a commercial vehicle (20k) and some small items of plant and equipment (5k); consequently, I do not expect the business to show a profit for a good 18-24 months. I have had a meeting with my new accountant who says that thanks to the Annual Investment Allowance I am able to off-set 100% of the cost of the vehicle and plant against my PAYE tax.

    This sounds too good to be true… is it?

    Thanks

    Darren.

    23 March 2012

  83. Admin

    Well, yes, you can offset 100% of the losses arising from your capital investment against your PAYE income, which will generate a tax refund of 20%-40% of the cost. But HMRC will not send you a cheque for 100% of the cost of your car and equipment at the end of the year.

    23 March 2012

  84. Sinead

    Hi, I’m currently in full time employment earning 20k.

    I started working Saturday’s as self employed, on 4th Feb and have registered with HMRC but will only earn £335 from Feb to April. Obviously I know the tax year is from April to April, but when should I do a tax return for these 2 months is it Jan 2012? And what percentage of tax should I keep back for this amount?

    23 March 2012

  85. Admin

    January 2013 is the deadline, you can do the tax return any time from April 2012 to January 2013.

    As explained above, your tax will be at 20%.

    24 March 2012

  86. Ian C

    Could you offer me some advice please.

    I currently work full time earning just over 30K.

    I have started a business on the side which is now starting to bring in money, I haven’t yet registered as self employed but gather that I need to do so asap.

    My worry is the tax implications. Setting up my side business has cost me nearly £4000 in equipment purchases. I’m worried that my tax will now rise and cost me even more money on a monthly basis. Is it possible to have my outgoings for my new business taken into account from the beginning so my tax costs do not rise straight away? Am I entitled to any return on my initial investments?

    29 March 2012

  87. Admin

    You will be able to claim the cost of the equipment as a deduction against your taxable profits in your first year. If, after this deduction, there is still a profit and therefore tax to pay, you can choose to pay this monthly through your salary, or in January 2013. Your monthly tax is not going to be hiked up just because you have started a business on the side, but obviously tax at 20% and possibly NI at 8% of your business profits is going to be payable one way or another.

    29 March 2012

  88. Paul G

    Hi - wonder if you could give me any advice please.

    I am self employed but have a paye job as part of my overall self employment. My total earnings from self employment and my PAYE job I have calculated to be £11700, once I have taken away my expenses. This is the first year that I have had a PAYE job as part of my self employment, is it too complicated for me to do my own self assessment online? I have paid about £80 NI as a direct debit over the last tax year as being self employed, but I have also paid £1116 as my PAYE NI. When I come to do my self assessment return, would this be classed as an overpayment or is it deducted from the tax I would owe for 2011-2012? Also I have paid £1828 tax in my PAYE job - is this taken away from what I owe as being self employed?

    Very grateful for any advice please, as I am getting a bit confused! Thanks - Paul.

    9 April 2012

  89. Admin

    “I am self employed but have a paye job as part of my overall self employment.”
    In most cases, this is the wrong way to look at it, and is likely to lead to confusion. You have a PAYE source of income, and a self-employed source of income, each of which has its own rules for calculating income, its own National Insurance, and its own section in the tax return. Only when calculating the tax for the year do the 2 sources get added together, along with anything else, to form your total taxable income.

    “…is it too complicated for me to do my own self assessment online?”
    It would be difficult for me to judge your abilities without ever having spoken with you, but plenty of members of the public in your situation manage to do it themselves.

    “…would this be classed as an overpayment or is it deducted from the tax I would owe for 2011-2012?”
    Overpayments of NI are rare, and NI payments are generally not transferable against tax or NI liabilities on other sources of income.

    “Also I have paid £1828 tax in my PAYE job - is this taken away from what I owe as being self employed?”
    Yes, your tax is worked out yearly on your total income, and you get credit for any amounts already paid.

    9 April 2012

  90. Gemma

    Hello, I have a PAYE job which pays 30k but also earned 3.7k through self-employed writing work in the last tax year. This work was carried out from home around my regular job, probably taking five weeks in total. Am still able to claim capital allowances?
    Many thanks.

    9 April 2012

  91. Gemma

    Sorry, re the above, I was actually referring to the expense of running a home office (rent, rates, power and water), rather than capital allowances. i.e. do I have to work out the fraction of time that the office was used (since I also have a PAYE job), or can I claim for the entire year since the work was spread out over the course of about eight months.
    Many thanks. Great site!

    9 April 2012

  92. Admin

    If your home office was 100% used for the writing, you can claim a space-based proportion of your household expenses for the 8 months.

    If the office had other use, you will have to restrict it based on actual hours of use.

    9 April 2012

  93. karen

    I am currently employed part time and I’m thinking of doing some self employment printing work in my spare time. I receive tax credits at the moment (child and working). In the first year I don’t expect to have much profit but how does this extra income affect my tax credits? do I have to contact inland revenue with my profits every month to adjust my tax credits so that I don’t end up with an overpayment at the end of the year. I’m really still trying to work out if its worth my while to do this or not so any help will be much appreciated. thanks in advance.

    9 April 2012

  94. Admin

    Extra income will probably reduce your tax credits, and it is usual to calculate your profit and inform HMRC yearly. What with decreasing tax credits, and tax and possibly NI to pay, you are not going to be a lot better off, but it is very very unlikely that you will be worse off financially. That is about all I can say based on the information supplied.

    9 April 2012

  95. Dave

    I am currently in part-time employment and have been receiving self assessment forms for the last 2 years even though I’m not self employed, the only self employed work I did was catalogue distribution which I packed in after 1 day and only earned £20 from it (even though I paid £90 for the catalogues). I never registered as self employed so I ignored the first self assessment form they sent, having now received another form and letters saying I’m being fined £200 for not completing the first one, I’m wondering what I can do about this and whether if I ring them and tell them all this I will still have to pay the fines?

    11 April 2012

  96. Admin

    If you have been sent a tax return, you have to complete it, regardless. For 2009/10 and earlier, there is no late penalty if there is no tax to pay. For 2010/11 and later, there is a fixed penalty of £100, with daily penalties starting 3 months later, so you should attend to that one ASAP. Penalties can be cancelled if you have a good excuse, but it does not sound like you have.

    11 April 2012

  97. Emma

    Hi, I currently have a paye income of 32k and am considering doing some private work separately. I would prob earn an extra 1500 per year. Am I correct in thinking that I would be exempt from national insurance on this amount but need to pay 20% tax via self assessment?

    11 April 2012

  98. Admin

    Correct.

    11 April 2012

  99. Dan

    Hello,
    I earned £22k in tax year 2010-11 from full-time employment and started one-man photography business in addition that year, only doing two photography jobs for total of £350 in that tax year (started photography late in tax year).
    Tax code is 647L and total Income tax paid that year was £3,200.
    I have completed online tax return and now been told I need to pay £496 (Class 4, Student Loan??). How has this been calculated??
    Panicked…

    13 April 2012

  100. Admin

    There is something else going on here, but I cannot tell what it is without seeing the full tax calculation or return.

    13 April 2012

  101. Dave

    Hi,
    I am thinking about setting up a small business whilst I am at Uni. To start with I will be doing it in my spare time and will not be paid a wage until the business is earning enough. Can I register the business without registering as self employed - technically I’ll be a volunteer until I can get a wage from it.
    Please could you advise me?
    Thanks

    15 April 2012

  102. Admin

    With self-employment there is no distinction between business money and private money, so there is no question of paying yourself a “wage”. You pay tax on profits as they are earned, regardless of how you transfer your own money around.

    16 April 2012

  103. Lyndsey

    Hello,

    I was self employed from last April 2011-June 2011, I then became an employee. In November 2011 I became self employed again until 30th March 2012. I understand that I need to complete the employee part of my self assessment for each employment. However I am struggling to understand if I need to tick any of the option to do with circumstance about my basis period and starting and ceasing date due to the swapping and changing :/

    Thanks in advance

    16 April 2012

  104. Admin

    If you consider that your business fully shut down, expecting it to be permanent, then started again as new, then you complete 2 self-employment sections: one for April 2011 - June 2011 and one for November 2011 - March 2012. You will need to enter the dates that the first business finished and the second one started.

    If on the other hand, you consider that the business was only dormant for a few months before continuing as before, you only need to complete one self-employment section, covering the whole year as usual.

    17 April 2012

  105. Lyndsey

    So on the option of the online assessment I can check the box that states ‘none of the above apply’?

    Thanks

    17 April 2012

  106. Admin

    You will have to be a bit more specific about which box, but you should not need to do anything more complicated than enter the start and end dates of your period(s) of self-employment. You are not permanently changing your accounting date.

    17 April 2012

  107. Claire

    Hi, I am currently filling in my first tax return and have a few questions. I started self employment in June 2011, but was claiming JSA from April 2011, do I need to include this JSA info on my tax return? Also, I ended self employment in January 2012 and claimed JSA until 26th March 2012 when I commenced employment. What do I include on the tax return? One final question, when I registered as self employed, I can’t remember exactly what I put as my business name - is there a way to find out? Thanking you in advance.

    20 April 2012

  108. Admin

    JSA is generally taxable, so the JSA received for both periods of claim should be included in the section for state benefits received. You should have received a P45 form at the end of each claim, confirming the taxable amount.

    Don’t worry too much about the business name, it is not important. In many cases it is simply the name of the person.

    20 April 2012

  109. Fiona

    Two questions for you please:

    (i) I am already registered as self-employed as I rent out a house (in conjunction with my husband). Am I right in thinking that any other business can just be declared along with the earnings from this?

    (ii) I started a new business that is not currently making a profit (stock cost a lot) but I will be declaring it this year as I think it is about time (1.5 years approx) that I did. Although running currently at a loss, I would still like to make a ‘business’ donation to a local charity - what is the best way to go about this?

    Many thanks.

    20 April 2012

  110. Admin

    (i) Renting out a house is not self-employment, unless it is holiday accommodation. Are you registered as self-employed, or for self-assessment?

    (ii) Buying stock is a payment, but not an expense. It only becomes an expense when you no longer have it, usually because you have sold it.

    I think you need more help than I can provide here.

    21 April 2012

  111. gill

    Good evening,
    Please can you advise me, I am hoping to get a part time PAYE job so that I can start my own business as a property developer, I know that I will have to register as self employed but my question is as well as paying tax by PAYE, will I also have to pay capital gains tax on any properties I sell in addition to the self employed tax. I understand that I will also be able to claim against any tools that I need to purchase in my first year of self employment. Thanking you for your advice in advance.

    28 April 2012

  112. Admin

    You may have to pay either income tax or capital gains tax on the gain made on selling each property, but not both.

    The question of which tax you pay is decided by the circumstances. Properties developed for their rental income potential (for you), and held for some time before being sold on, are likely to be subject to CGT. A series of properties developed and then quickly sold on are more likely to be subject to income tax.

    29 April 2012

  113. Leonie

    Hi,

    I work two days a week and don’t pay tax or insurance on it. I am hoping to go into selling some items for a company and been told I would have to register as self-employed. The income I receive from this job depends on how many bookings I get and I get paid in commission - so one month could be better than others.

    My tax code is set at a level which is higher than the earnings I am receiving now in current job.

    When I start my new job do I still have to pay tax or does it all depend what my earnings are and if below the tax code set?

    All confused!

    2 May 2012

  114. Admin

    It obviously depends on what you earn. Regardless of what your tax code is and what happens each month, at the end of the year your tax is calculated on your total income, and you are given credit for anything already paid through PAYE.

    2 May 2012

  115. Nicky

    Hi, I am employed full time and also started my own business 6 months ago. I have not earnt any money yet through the business as I have been setting it up and not actively advertising yet. What do I need to do in reaction to my tax return? I have never done one before and as I haven’t any self employed earnings to declare I am unsure which form to fill in.
    Thanks

    6 May 2012

  116. Admin

    You need to establish what date your business started to trade. This is generally when you start selling your goods or service. In the tax year in which that date falls, you complete a self-assessment tax return (the employment section for your job, and the self-employment section for your business). You can claim any expenses incurred before your official start date in that same year.

    7 May 2012

  117. Jason

    Hi, I am a sole trader and was considering employing my girlfriend as an employee as I have read online that it is a perfectly legitimate method of getting an income tax break. Can you please confirm if this is true and do I need to inform hmrc of this? Would I just simply pay her a monthly amount into her bank account and put it down as an expense on my tax return form? She is currently working full time and earns under 18k but sometimes helps me with my business in her spare time. Any advice would be appreciated. Thanks

    7 May 2012

  118. Admin

    It is not as easy as you think. As she already has a job, you would need to open and operate a PAYE scheme with HMRC, then calculate and deduct the tax from each payment to her, pay that tax to HMRC, and file various payroll forms and returns online.

    8 May 2012

  119. Jem

    I have just received my first self assessment notification (I registered self employed on 6.2.12) so only have 2 months worth of accounts to go through for the 11-12 tax year (I will then start my books 6.5.12-2012 to make it easier!)
    Because I haven’t earned a significant amount over those 2 months the online self assessment says I have no national insurance or tax to pay (I haven’t applied to be exempt from paying NI).

    I’m guessing my income over those 2 months is too low to be charged for class 4 NI (below £7,000) but would have no problem in paying class 2 at £2.50 a week. Is this something I have to do myself or will I get sent information about when/how to pay this at some point during the year?
    Thanks

    9 May 2012

  120. Admin

    Yes, they will contact you about your Class 2 NI.

    9 May 2012

  121. Gordon

    i was considering opening another business on top of my current one but I’m not sure what happens in terms of the tax aspect of things. do i just keep separate records and then when it comes to tax returns then to put both businesses on there? Likewise VAT-wise,if that business reaches the threshold then that needs a separate vat registration number or do i use my existing one for both businesses?.

    the other thing is a concerning VAT on cars, am i right in saying that you can claim VAT back if i buy a new car?

    thanks

    9 May 2012

  122. Admin

    “do i just keep separate records and then when it comes to tax returns then to put both businesses on there?”

    Yes; each business will have separate pages in the tax return.

    A VAT registration covers a person, not a business, so you if you are already VAT-registered, you will need to account for VAT on the new business straightaway, using your existing VAT number.

    You can reclaim the VAT on a car if it is used 100% for business.

    10 May 2012

  123. Ash

    I work full time for a plumbing company earning around 23k. I am going to go part time self employed (evenings and weekends) doing the same work but in a different area of the job. I plan to spend £7000 on my own tools and equipment so am I right in saying I will not pay any tax until this equipment cost has been paid off and I am making a profit?

    10 May 2012

  124. Admin

    Basically, yes, though you also have the option of claiming the full £7000 in the first year, offsetting any resulting loss against your employment income in that year to generate a tax repayment.

    10 May 2012

  125. Pat

    Hiya my partner was self employed in 2006/2007 and never filled in tax return as was young at time and didn’t understand how to do this. Since then until tax year 2011/2012 he has had numerous jobs paying official tax through his PAYE codes but never confirmed to tax office he was not self employed. He is aware of penalties for neglecting the first initial tax return and has to fill in each years to say he was employed etc as per HMRC advice but am finding it hard to get any information to assist with filling this in. He has since worked self employed through 11/12 on a low income but hasn’t had a UTR number?. Will once all returns filed he be able to pay all penalties/ NI contributions etc need to be paid straight away or is there discretion with payments and do you have any advice where we could go to get assistance with forms with paying accountant etc. Seems really complicated to sort and due to receiving low incomes throughout etc not sure how this would be dealt with. Thanks

    14 May 2012

  126. Admin

    If the amounts involved are not enough to justify using an accountant, you can get basic free advice from the tax office.

    14 May 2012

  127. Lyndsey

    I make and sell jewellery for the past year but the money I have spent far out ranks the money I have earned. I had misread the information on registering for tax and am now aware I should have even though I wasn’t and still am not making profit. I am concerned about getting in to trouble over this. Can you advise?

    17 May 2012

  128. Admin

    You are not going to get into trouble if there is no tax at stake, but you should register now.

    18 May 2012

  129. toni

    I’ve recently got a paid assisting job on a six month contract part-time split between 2 companies.

    I recently did work for 1 company and as I was already over on my hours it was classed as overtime.

    But because the pay is all sorted out by the other company as technically I’m being rented out the 2nd company asked to be invoiced on the overtime hours, so I did and have been paid.

    The problem is this won’t happen again and they have now correctly sorted out a system on overtime, so it goes straight through the normal method means of pay on my tax code. But for this one bill as it was only 11 hours I don’t want to have to pay for setting up as freelance photographer as I don’t plan on doing freelance and now the pay is set up correctly. but I’m concerned about the 11 hours. Do I have to sign up as a freelancer or can it just be ignored as it’s one pay slip or would this come back to haunt me?

    24 May 2012

  130. Admin

    If you are employed by the company paying you, it is their responsibility to sort out the tax, not yours.

    You need to establish exactly what your relationship is with the 2nd company - are they employing you, or using you as a self-employed service provider?

    If you are not employed by them, to declare the income for tax purposes, request a tax return using form SA1 then enter the income as casual income in box 16.

    25 May 2012

  131. Mary

    My husband has recently retired and is in receipt of a modest pension. He has a UTR number from self employed freelancing and will also now do some self employed work for something else. Is his pension now classed as main earning (entered as such in the tax return) and then list the 2 x self employed jobs separately? As pensioner (60 years old) is he still required to pay NI? Many thanks. PS. Have never found the Tax Office particularly helpful when asking for advice previously.

    25 May 2012

  132. Admin

    “Is his pension now classed as main earning (entered as such in the tax return) and then list the 2 x self employed jobs seperately?”
    Yes, that is correct, unless the 2 self-employed jobs are the same type of work in which case they should probably be combined.

    “As pensioner (60 years old) is he still required to pay NI?”
    Liability to NI is determined by the state retirement age, rather than your own assessment of whether or not you are a “pensioner”.

    25 May 2012

  133. Paul

    Hy
    I just found your site, very interesting, haven’t worked out how to Bookmark it yet;

    I am self employed craft work business, not doing too good this last year or so, profit about £500 or less.

    Have just taken on a part time job this week, less than 16 hrs, about £125 so how do I get the Tax form stuff and NI sorted with new company and add it to my SE for SA, or do I contact Tax office for code?

    I qualify for Working Tax credits, so do the new employers need this info?

    If I pay Tax/NI direct through the part time employed work, will I get taxed again on this when I do the Self employed SA?

    sorry I’m over 50 and all this is new to me and need simple to understand stuff
    many thanks

    25 May 2012

  134. Admin

    “Have just taken on a part time job this week, less than 16 hrs, about £125 so how do I get the Tax form stuff and NI sorted with new company and add it to my SE for SA, or do I contact Tax office for code?”
    Complete a P46 form, and give it to your new employer. You can download one, or ask them for a blank form.

    “I qualify for Working Tax credits, so do the new employers need this info?”
    No, but you tell the tax credits office if your circumstances change.

    “If I pay Tax/NI direct through the part time employed work, will I get taxed again on this when I do the Self employed SA?”
    Not exactly. At the end of the year your tax is calculated on your total income, and you are given credit for anything already paid through PAYE.

    26 May 2012

  135. Rod

    Hello,
    I’ve found your site whilst searching online for some advice.
    My daughter is working ~ 25-30 hours per week in a local pub, on the payroll- paying tax & NI, and she has just started to do some work as a trainee swimming teacher with a local swim teach company. This second employer has told her that she will need to sort out her own tax and NI, and will effectively be self employed. I must admit I am not clear what this really means and she is seeking some further explanation and clarification. If she is effectively self employed whilst ‘working’ for this swimming company, how should she go about arranging tax and NI for this employment?
    Thanks

    28 May 2012

  136. Admin

    Neither your daughter nor the employer have a free choice about whether she is employed or self-employed for tax purposes. It is determined by the details of the arrangement between you and the person paying you (the real situation, not what it says on paper). If she is engaged as a trainee, she is probably an employee, but if she concludes that she is self-employed, all the details in this article apply.

    29 May 2012

  137. Rod

    Thanks for the very prompt response and advice.
    You say that there is no free choice over whether someone is employed or self employed - where can I go to get some guidance/definition on this to help us see whether the arrangement is one of employer/employee or whether it can be defined as self employment?
    Thanks again.

    29 May 2012

  138. Admin

    HMRC have an online status checker at http://www.hmrc.gov.uk/calcs/esi.htm

    29 May 2012

  139. Agnes

    Hi I’m wondering if you can help.
    I registered as a self employed last year in September as a massage therapist for a people with small earnings. I cancel that registration within next few days after registration because I changed me mind and I didn’t want to work as a massage therapist. I got full time job somewhere else. I got the phone call yesterday from HM revenue
    that I have to return my tax for this whole year. I didn’t work at all as a self employed. I still have the copy of my cancellation from September with me. Shall I send that again to HM Revenue and why do they ask me to return tax if I didn’t start anything??
    please help me!

    29 May 2012

  140. Admin

    The simplest solution is probably to complete the tax return, complete the self-employment section with an accounts period of a few days, enter zero income and expenses, and enter that you have now ceased the business.

    29 May 2012

  141. ShazzE

    I was employed in the last tax year, and after being laid-off went self-employed. I am now starting to file a tax return, but don’t know if I need to complete the employment section? What is this for - the help doesn’t give much information.

    29 May 2012

  142. Admin

    The employment section is where you enter your employed income. I don’t really know how else to explain it.

    29 May 2012

  143. Tim

    I am a registered self employed as a sole trader and work as a freelancer for companies on a project basis. A new client, for whom I worked for 10 days, insisted I go onto the payroll and I have been paid via PAYE. My payslip shows an adjustment for Employers NI in the deductions and this sum has been taken from my net pay. I have only ever had to go on the payroll once during the 15 years I have freelanced and I have never come across this before. HMRC told me to go back and question it. The companies response is as follows via email, “RE: the employer’s NI: as you haven’t got a limited company, as agreed we had to put you through our payroll which means that we incur employer’s national insurance costs (which we wouldn’t do if you were billing us through a limited company). We therefore have to deduct that from you so that our total cost is £325 per day (my day rate). I was not informed of this before carrying out the work.
    1. Are companies within their rights to do this?
    2. Can I claim this back?

    30 May 2012

  144. Admin

    You need to go back to the agreement you made with them, which was hopefully in writing.

    If this shows that you are an employee, they have no right to make deductions, other than statutory ones, without your permission.

    It sounds like they are put out by having to pay Employers’ NI, and are trying to make it sound like you are the one that has to pay for it. This isn’t strictly correct, but you will probably have to make a commercial decision about whether you put up with it.

    2. No, you cannot claim it back.

    30 May 2012

  145. Tony Wood

    18 months ago, as director of a Ltd company, I was made bankrupt due to DG’s. At 57 the only job I could get was for 18hrs a week in a retail store. I am on a ‘ Nil ‘ Tax code.
    A year ago I paid to retrain myself and took on a self-financing NVQ. During this time I have had very high outgoings, with high mileage etc. I have had some income but this has been put back into training and expenses etc. My informal P+L shows very little profit. As I am on a Nil Tax code and still under training I have not thought to inform HMRC until I am able to make a living from my NVQ.
    Now I find work has dried up and I am about to have back surgery which will put me out of action in my 18hr a week job, and has brought my training and potential earnings to a STOP.
    I assume I just try to live on SSP until fit for work, but at what time do I tell HMRC about my NVQ and residual earnings, even though they have now stopped ?

    30 May 2012

  146. Admin

    I am not sure what a DG is, and whether by Nil tax code you mean NT, or just one that results in no tax payable due to low earnings.

    1. Tax relief is not always available on training costs, particularly where it is a new skill.

    2. You should tell HMRC as soon as possible about the period for which you may have taxable income.

    30 May 2012

  147. Danny

    Hi, I’m on a low income, i have recently been offered the chance to go self employed with my own business, my partner claims housing benefit and we both have a joint claim for working tax credits and child tax credits, if i was to go forward with this opportunity would the benefits be affected? A new business opening isn’t guaranteed to make money straight away and i would like to know where i stand?

    31 May 2012

  148. Admin

    Yes: generally, housing benefit and tax credits are affected by how much income you have.

    31 May 2012

  149. Rebecca

    Hi,

    Myself and my partner are setting up a small business.

    We have a joint bank account and so will share all earnings etc. We wonder if we both need to register as self employed or can one of us own the business with the other being in a volunteer capacity?

    We both also work part time.

    Thanks

    31 May 2012

  150. Admin

    There is no problem with one person running a business using a joint bank account, but what you are suggesting is a tricky legal area with lots of possible implications (entitlement to income, state benefits, insurance, liability), which is beyond the scope of a blog comment.

    1 June 2012

  151. danny t

    hi there, I’m currently in full time work, but I’m looking at starting my own website selling fishing tackle, i know i will have to register as self employed, but i don’t know how much the company may earn, could be a hit or miss as there’s so many around.
    i have made all profit margins on all the products I’m looking to sell and have a rough figure, would i need to give this estimated figure to the HMRC?

    8 June 2012

  152. Admin

    No, there is no need to predict your earnings when you register.

    8 June 2012

  153. Jill

    Is there any legal complication, when a person doing a part-time freelancing after office and a separate full-time work. What if he does not mention this to his full-time employer.

    14 June 2012

  154. Admin

    That depends on what is in the employment contract of the full-time job.

    14 June 2012

  155. Carolyn

    I am currently in full time employment and paying income tax etc through PAYE. I have recently been commissioned to do some projects related to a hobby/interest i have outside of work for which i am to paid approx £160 each time. So far this has been for the past three months and although i have an indication that i will be asked again next month this is by no mean guaranteed to be regular income. I understand that i will need to pay income tax on this but wanted to check what was the best way e.g. self assessments and to check whether any items/products/tools purchased in order to complete the work could be offset in any way.

    14 June 2012

  156. Admin

    Yes, self-assessment is the system under which tax on self-employed income is declared and paid; and yes, equipment and other business expenses can be deducted from taxable profits.

    14 June 2012

  157. Terry M

    Hi, I am leaving my employed job to go self employed. In 2011-2012 I earnt £17500 gross as an employee.
    My earnings for 2012-2013 as a employee will be £3800 gross from April to middle June (when leaving employment to start self employment).
    So am I right in thinking that if my projected profit from my self employment for the rest of 2012-2013 is £3000 then I will get a tax and NI refund on the tax paid through PAYE when I was employed, as total earnings for the year 2012-2013 is only £6800.

    14 June 2012

  158. Admin

    You will get a refund of any tax paid, but not NI as that is calculated on a weekly or monthly basis for employees.

    15 June 2012

  159. David

    I have just registered as self employed- I do home tuition. I have just registered as self-employed and applied for working tax credits. I am finding it very hard to make ends meet so may have to get a part-time job. If I am working full-time (around 35 hours) a week and have a part-time job will I still be able to get tax credits?

    20 June 2012

  160. Admin

    Working extra hours does not by itself reduce your tax credits, but earning extra income might. It depends on the amounts involved.

    21 June 2012

  161. Natalie

    Hiya, Just doing my tax return for the first time, I am part time employed and total pay last year was 10888.95, (tax taken 681.80) and I have a small e-trader business started a few months into the year. The profit was only 246, and I never bothered including things like heating or lighting etc which I guess I could do, but the figure at end of tax return is 50.08. Does this sound right, I felt it seemed too much, but have no experience of this?

    25 June 2012

  162. Admin

    20% tax on £246 is £49.20, so it sounds about right.

    25 June 2012

  163. mike

    Hi Great site, could you please tell me what tax return form I need to fill out as I was employed and started my own company in the same tax year. My combined earnings for the year was £13335. I’m confused regarding the full or short form. many thanks

    1 July 2012

  164. Admin

    You can only fill in the Short Tax Return (SA200) if HMRC send you that one. You cannot:
    - order it
    - download it
    - ask HMRC to send you this form
    - use a form that has been sent to someone else.

    2 July 2012

  165. Jacqui

    I am working part time and also receiving my state pension. I pay tax on both of these at my workplace. I recently started selling some small paintings at small prices on ebay and it is only a hobby but I have enjoyed doing this and want to know if I will have to be registering as self employed or is it a different like a hobby tax or something like that as I don’t expect to make a lot. Can you give me advice please. I intend to register to get things right, so how do I start?

    5 July 2012

  166. Admin

    There is no such thing as a “hobby tax”. If this is a regular activity, you are liable to normal tax on it as with any other income. Proceed as explained in the main article. If it just occasionally selling personal items, this is unlikely to constitute a business and you will not have to register. See this page for more detail: http://www.brighton-accountants.com/blog/ebay-income-tax/

    5 July 2012

  167. Karl

    Hi there,

    I work full time as an employee and fall into the 20% tax bracket. I also registered as self employed and do a bit of work in the evening or of a weekend. My main PAYE job falls just short of the 40% tax bracket and I think that shortly my self employment earnings will take me over the 40% threshold.

    What will happen to my PAYE tax code if my self employment income takes me into the 40% bracket? Is it likely to change? Am I correct in thinking that my PAYE tax code will remain unchanged and I will just pay any tax due at the 40% rate from my self employment earnings when I complete my self assessment?

    Thanks.

    8 July 2012

  168. Admin

    As per the article:

    “It is also unlikely that your PAYE tax code will need to change, for the first year or 2 at least”

    and

    “Alternatively, provided your tax return is submitted online by 30 December, and your combined liability for 31 January is less than £3,000, you can pay the tax by having it deducted from your salary via PAYE throughout the following tax year. This will result in your tax code changing, which will signal to your employer that you probably have another source of income. If you do not want the tax to be collected this way, tick box 2 on page 5 of the tax return before filing it.”

    The fact that you may be paying 40% tax rather than 20% makes no difference to this.

    10 July 2012

  169. Anna

    Hi, I m working full time and earn £31k. I am thinking of working part-time weekend and would earn about £3k for this but am not sure which is sensible to do it via PAYE or LTD Co. If I do decide to do it via LTD co. (I have registered the Co. already) would I need an accountant at the end of the tax year or is it possible to file my own paperwork? If its possible is there a web link I maybe go onto and see what needs doing?

    Hope you can help.

    Kind regards

    11 July 2012

  170. Admin

    You are *allowed* to do your own accounts and tax as a limited company, but it is a much more complicated set-up and there are many traps and things you need to be aware of.

    It you could learn about this stuff by reading a website, it would not take years to become an accountant, but if you want to have a go, you could start with the Companies House and HMRC websites.

    If your income is only £3,000, the cost of an accountant is likely to make using the company unviable.

    11 July 2012

  171. Kirsti

    Hi, i work full time earning approx £14,000 pa and pay tax and ni normally in my wages. I have started making jewellery to sell at craft fairs, i am currently making a loss and will be for a while as i price my jewellery close to cost price but when i make a profit it will just go on more materials - so wondered what i need to do re. registering as self employee and anything i will need to pay

    15 July 2012

  172. Admin

    Re-investing in stock will not turn a profit into a loss, as it does not change the cost of what you have already sold. You need to understand the difference between payments and expenses.

    15 July 2012

  173. Davie

    Hi there, really good site you’ve got here. I am thinking on starting up and registering a self employed business providing services for functions.

    My business structure will be to do some of the DJing work myself and therefore pay tax on this however I will also be getting work for musicians, caterers etc who are also self employed, with myself taking a cut from the amount paid for getting them the work.

    Obviously I would need to pay tax on the cut that I earn however would I be responsible for paying tax on the amount the musician or caterer earns since the service will be advertised under my business name or will the other individuals be responsible as they are also self employed?

    16 July 2012

  174. Admin

    “…since the service will be advertised under my business name”

    You could have legal, PAYE, employment status and VAT issues here that are well beyond the scope of these comments. You need full advice.

    17 July 2012

  175. marvin

    Hi, I work full time paye pay my taxes and national insurances etc, I would like to make some extra money on an auction site approx making £200 a month but i will be importing electronics from china and selling them at a profit but only for a bit of fun and a bit of money on the side. What are the implications of this do I have to pay tax on the goods and pay tax on what I earn? Kind regards

    18 July 2012

  176. Admin

    I must be misunderstanding the question - of course you have to pay tax on what you earn - why not? Do you think that HMRC will not be interested in taxing the profits from an activity simply because you call it “a bit of fun”?

    18 July 2012

  177. Karl

    Thanks for your response. Just to clarify so that I am 100% sure on this. If my self employment earnings take me above the 40% bracket when combined with my PAYE income, I can simply pay any tax owed, whether at 20% or 40%, when I complete my self assessment. I do not wish to have anything change on the PAYE side you see, and would rather keep my employment and self employment completely separate.

    18 July 2012

  178. Admin

    That is basically correct. Your level of employment income may affect the amount of tax you pay, but you can keep it completely separate from the operation of PAYE if you wish.

    18 July 2012

  179. Davie

    If the service was not advertised under my business name but I profited from their services would I need to pay tax on the total fee paid or just on the amount that I earned?

    19 July 2012

  180. Admin

    I’m not sure how you would market your services in that case, but you may still have some issues around whether your musicians etc are supplying their service to you or to your customer.

    Income tax is payable on profit, not turnover.

    21 July 2012

  181. Anonymous

    If the musicians were registered as self employed with HMRC and I was not their only source of business, not giving set shifts, did not have the power to tell them how to go about their work etc then surely they would be seen as self employed and therefore I would not be liable for their taxes, PAYE etc?

    In terms of marketing do you think I could still have my business name as the company who supplies/promotes the musicians but as long as I make it clear that they are separate ie always name them individually or give the name of the band then that would be OK as that way it would be clear that they are not actually working for me in an employee scenario?

    22 July 2012

  182. Admin

    1. Yes, that will probably deal with the PAYE and employment status issues.

    2. This is mainly a VAT issue, and a question of whether the performer is part of your service, or a separate disbursement. You need to draw a distinction between just naming the performer, which most marketing would do anyway, and making it clear that your customer is engaging them directly and they are under the customer’s control.

    Those are the broad approaches, but with both of these issues, the detail is very important, and you are not going to get that for free over the internet.

    25 July 2012

  183. Stu

    Hi, I am employed full-time but deciding to start my own self-employment part-time. I registered with NAPIT in July 2011 and have done a few small jobs since then. When do I need to register as self-employed for tax purposes and if my business year runs from July 2011 - June 2012, when do I need to submit a tax return please? Any help with this would be much appreciated as I do not wish to fall foul of any registration/tax requirements.

    11 August 2012

  184. Admin

    You should register as self-employed as soon as possible.

    To make your accounts and tax returns as simple as possible, you should prepare your first accounts from July 2011 to 31 March 2012, and then yearly to 31 March thereafter. However, if your self-employed income is erratic during your first year or 2, and you have different marginal tax rates in 2011/12 and 2012/13, there might be a small tax saving available from choosing a different accounting date, but you would need an accountant to navigate through all the possibilities. Regardless of your chosen year-end date, your first tax return, for the tax year ended 5 April 2012, will need to be done by 31 January 2013 if filed online.

    13 August 2012

  185. Leigh

    I’m currently completing my self-employed self assessment online. In the employment section, where they ask for employment income is that where I enter my earning from my regular, PAYE job for that tax year? And is that simply the figure on my p60, as I didn’t have any alterations, deductions etc? Thanks

    13 August 2012

  186. Admin

    Yes, and yes.

    14 August 2012

  187. Tory

    Hi, I’m full-time employed and recently registered for self-employment (am still waiting for my UTR) as I want to start selling jewellery in my spare time. As it was a hobby before, I’ve already bought lots of materials, tools, beads and kept some receipts this year. Can I still add them to my business expenses even if it was purchased before I registered my business start date?
    Many thanks

    14 August 2012

  188. Admin

    In principle, yes, they are known as pre-commencement expenses and are claimed in your first year of business.

    However, you will need to work out which of those items were bought for your enjoyment in making jewellery as a hobby, and those which were bought for processing and sale for profit in an organised fashion. Only the latter can be claimed.

    15 August 2012

  189. Ian S

    There are sections above which sort of clarify my answer but need full clarification with my circumstances.

    I have enjoyed vehicle detailing as a hobby and wish to turn this initially as a self-employed business. I have paid out costs for website, development, clothing, products and so on. I have not yet actually detailed a vehicle, but I have costs going back over the last year whilst I setup the necessary, so that I can market the business. I now have my first potential customer and wish to setup the business. Will the HMRC see my setup over the last year as an issue, as I will need to bring these costs into my self-assessment.

    Thanks
    Ian

    16 August 2012

  190. Admin

    Generally, the business starts when you are in a position to provide a service, and you start actively marketing it. Before then, you are preparing to trade. Any expenses incurred before you properly start are called pre-commencement expenses and are claimed as though they were incurred on your first proper day of business.

    17 August 2012

  191. Emma

    My boyfriend is a mechanic at a private garage but is considering registering as self employed to be able to do private jobs on the side. We are hoping to buy a house in the next year and was wondering if this will have an affect on the mortgage even though he will still be in full time employment?

    20 August 2012

  192. Admin

    As long as his employment earnings are not affected it will not cause a problem, though it is unlikely to help much either (first year of business).

    21 August 2012

  193. Johnny B.

    If I was registered as Self Employed just for one day, and I didn’t have earnings, do I have to do my annual tax return?

    23 August 2012

  194. Admin

    If they have sent you a notice to complete one, then you must do so.

    If they are aware of all your sources of income, but they have not requested a tax return, then you do not have to complete one.

    24 August 2012

  195. John

    Good morning, been registered self employed for ten months which cross I think 2 tax years ( 2011/12 & 2012/13. The work has ended and I wish to stop being self employed the question is can I do a tax return for the whole 10 month period and wind everything up as one or do I have to do two separate tax returns for this year and wait another next year?

    30 August 2012

  196. Admin

    If your self-employed work spanned 2 different tax years, then you will need to complete a tax return for each year.

    30 August 2012

  197. Victoria

    Hi there, I’m full time employed and my salary is around 28k pa, but I’m looking to do some freelance work teaching yoga at my local gym- they’ve told me I need a code (is this from registering myself as self employed?) so I’m not sure how I do that… And I’ll only be covering classes when needed initially and may never go beyond that, I anticipate possibly getting between 0 and £60 per month- and unlikely to ever be more than 500 pounds in a year, can you tell me how I set myself up
    And what the implications are on that figure?
    I’m really naive about the subject and wanted to get started ASAP.
    Many thanks,
    Victoria

    4 September 2012

  198. Admin

    I’m allowing the above comment to appear, not to answer it, but because I get a lot of submissions like it, and I really don’t understand why. The queries are so general, they seem to me to be answered by the main article at the top of the page. Please let me know why you posted it, as I am genuinely interested, and want to improve this webpage for other visitors. Did you read the article, but not understand it, or a specific bit of it? Did you bother to read it at all? Surely you were not expecting me to re-word the whole thing for you, while tailoring it to your exact circumstances?

    Specific questions, which show at least an attempt to understand the article, and which are not already answered in another comment, continue to be welcomed.

    4 September 2012

  199. Bob

    Don’t worry Admin, it’s a great article, been searching for a simple guide on this topic for ages & this is the business! So many sources are about self employment by itself.

    Keep up the good work!

    6 September 2012

  200. magda

    I have registered as self employed in September 2008 but I have had small earning, it was only some extra pounds on a side while i still was employed on part time basis with other employer. Last time I have worked for myself was in December 2009, i had to stop due to my pregnancy. It has been nearly 3 years since I worked for myself but now I am unemployed and was thinking to go back to self employment. Am I still registered, i received papers to fill in last year but I had to leave it almost blank due to no income. Can you advise me on that please. Thanks

    12 September 2012

  201. Admin

    If you have never told HMRC that you have stopped being self-employed, and the “papers” that you filled in last year were a tax return, then you are probably still registered. Regardless, if they have sent you a notice to complete a tax return this year (probably in April), you will still have to do it.

    12 September 2012

  202. Jan

    Hi,

    I am full time employed and my employment / employer has remained constant for the last 25yrs. In June 2009 I qualified as a personal trainer as a complete aside to my day job. (The purpose of this was to have the qualification in the back pocket as it is an interest and also pension supplement in later life). In 2010 I registered as self employed and earned a one off amount of money in Feb 2010. I completed a tax return for the 2009/10 tax year detailing that income. On submission of my 2010/2011 tax return I told HMRC I was no longer self employed (not enough time in the day and too much hassle) and that my last self employed income had been Feb 2010. In Sept 2011 they wrote to me and told me I did not need to fill in another tax return. At that time I had no intention of earning myself any self employed money again.

    In Feb 2012, I was asked to do a fitness input / workshop by a friend which earned me £150. My expenses for that tax year 2011/2012 (website hosting, domain name, Professional register fees) amounted to £149.47. Travel expenses to that workshop take it my expenses over my “profit”). I have earned no further self employed money since nor do I intend to in the future.

    So my question is, do I need to tell HMRC about this income. I believe it falls into casual? and no profit? I was hoping to avoid having to fill in a tax return.

    Many thanks for any advice and I hope the answer isn’t above.

    18 September 2012

  203. Admin

    Thank you for your detailed and well-considered question.

    As you have no income on which tax would be payable, there is no requirement to notify the tax office.

    However, if you have a loss arising from this work, you may be able to carry it forward to offset it against other future casual income. To do this:

    Request a tax return by submitting an SA1 form;
    On page TR3 of the tax return, enter the relevant amounts in boxes 16 and 17;
    On page AI3 of the tax return, enter the relevant amount in box 2.

    From what you have said, in your case it is probably more trouble than it is worth.

    18 September 2012

  204. Matt

    I am currently unemployed (from Feb 2012) and not signing on because i am not eligible due to not having made enough Class 1 contributions in the previous 2 years and having savings above the threshold. I did start an employment in early May 2012 but was only there one day because it was not suited to me. I have recently done a few days work for a friend for which they have told me to invoice them and for me to sort the tax out myself. The amount of the invoice will only be about £200 and is a one off, I won’t be doing any more work like this. What should I do regarding paying tax? Do i need to register as self-employed for this?

    18 September 2012

  205. Admin

    You should not register as self-employed solely as a result of doing some one-off work.

    However, the income from that work is potentially taxable, if you have enough other taxable income in the tax year to go over the personal allowance. If this is the case, you need to declare it on a tax return, which will be issued to you some time after you have notified chargeability on form SA1.

    18 September 2012

  206. Sue B

    I have spent weeks googling the very same questions that your article has answered - yes I READ the article!! I would like to say a heartfelt thanks for all the excellent information given.

    Admin, I don’t have any questions for you :0(
    Instead I would like to say THANK YOU for making me smile and lol. I know I couldn’t be as restrained in my responses, you must have an exceptionally patient nature. :0)

    18 September 2012

  207. kristina123

    Hi there!

    My husband was in full time employment and then he got made redundant. Then few month later he went self employed. and all that happen within one tax year. So he earn £9k through self employment. He paid £500 (with something) on that 9 grand, then tax office tell him that he has to pay more because if you add up what he earned from both places for whole year he needs to pay more. Which I think its nonsense, because he already paid tax on full time position automatically. NEED YOUR HELP!!

    Thanks

    19 September 2012

  208. Admin

    I’m not sure what you mean by “He paid £500 (with something) on that 9 grand”. Do you mean he has already paid about £500 tax on his £9,000, and therefore you think all his tax for the year should already be paid? If so, I think the issue here is that £500 tax on £9,000 income is clearly insufficient (5.6%?), and it was deducted at this low rate as the person paying it was not aware that your husband already had other taxable income in the same tax year. Your tax for a year is worked out by adding together all income for that year, working out the tax on that total, and then deducting all tax already paid. Any tax deducted at source from income throughout the year is only a payment on account of the final tax liability, which might be too much or too little; there is no way of knowing until after the end of the year. You might not like the outcome, but I do not think it is “nonsense”.

    19 September 2012

  209. Cocohoney

    Hi, I have read through and been unable to find a situation quite like mine.
    I currently have two part time jobs which earn me about £10.000 yearly. I want to start a business with a friend, and I am not sure which way to go about it- the friend has no other income.
    We do not expect to make any profit for the next year or two, as we will have heavy outgoings which we will fund ourselves and from any income the business has, so I understand from your article that we do not need to register.
    This has left us a bit confused as we feel we should register for everything to be ‘above board’.
    If we do decide to register while I am still earning from other employment, would it be better to be a partnership or a sole trader under my friend’s name only?

    19 September 2012

  210. Admin

    If you expect to be making profits on which tax is payable at any point in the life of the business, then it is recommended that you register right at the beginning.

    Registering as a sole trader when really the business is 2 people is rather contrived, possibly fraudulent, and subject to challenge by the tax office. Quite apart from that, there would be numerous other legal complications which are beyond the scope of this page. For example, what if you fall out, and your partner does not pass on your share of the profits?

    20 September 2012

  211. Myers

    Hi, I am just about to register as self-employed, I have just finished an internship where I was on low income for a year and also did a second job in an evening. I am still continuing to work at my second job (which is part-time).
    Whilst doing these two jobs I also did a fitness training course, can I back date my self-employment to when I paid for my course so I can claim it back in tax relief for my self-employment? Will this effect tax to do with my other two jobs? Also I haven’t actually made any money from being self-employed yet, is it true that if you start more than half through a tax year you don’t have to do a self-assessment?

    Thanks

    20 September 2012

  212. Admin

    The training costs of learning a new skill are generally not tax deductible.

    “is it true that if you start more than half through a tax year you don’t have to do a self-assessment?”
    No, this is completely wrong, it has nothing to do with it.

    21 September 2012

  213. John Duffy

    I currently earn £45,000 through PAYE. My friend and I are planning on setting up a consultancy business and could earn £200,000 in the first year. Am I right in assuming that I have to pay 40% tax and 2% NI on my half?
    Do I have to declare myself self employed or just add this info to the tax return I already fill in every year?

    21 September 2012

  214. Admin

    “Am I right in assuming that I have to pay 40% tax and 2% NI on my half?”
    Broadly, yes.

    “Do I have to declare myself self employed or just add this info to the tax return I already fill in every year?”
    You should register as self-employed, using your existing 10-digit tax reference number so they do not set you up as a new person.

    With that income level, you should see an accountant ASAP.

    21 September 2012

  215. Craig

    Hi,

    I make a little bit of cash on the side which I declare as self employed income etc.

    Am I allowed to claim costs (or part of) such as my home pc and broadband as expenses? I have these things anyway and just use what I already have at home for my own business.

    Or do businesses expenses have to be clearly as only being used and strictly necessary for the business?

    22 September 2012

  216. Admin

    The expense rules are far too complicated to cover here, but if you use your computer a bit for business, HMRC are unlikely to object to claiming say 10% or 25% of it.

    22 September 2012

  217. alisan mcgee

    I have a part time job of 16 hours my tax code is 810L my annual salary is £6240, I am thinking of buying mobile phone cases from china, and re-selling them on ebay, but I don’t want to set it up as a business, as I will only be selling now and again, and wont be selling huge amounts per week, but will I have to tell hmrc and will I pay tax, and will I have to charge vat on the cases.

    I am just wondering, obviously I don’t want to do anything illegal.

    23 September 2012

  218. Admin

    “I don’t want to set it up as a business”
    That’s not really within your control. Either you are carrying on some organised activity in order to make a profit, in which case that profit is taxable, or you are not. Whether you choose to label it a “business” or a “hobby” is irrelevant if the profit motive is there.

    “will I have to tell hmrc and will I pay tax”
    That depends on the profit you make each year.

    “will I have to charge vat on the cases.”
    It is unlikely that you will have to register for VAT, or charge it. The turnover registration threshold is currently £76,000 per rolling 12-month period.

    24 September 2012

  219. Oliver

    Hi,

    I have been self employed for the past year and a half now (approx). In January 2012 I completed the tax return and did not need to pay tax as I did not earn enough!

    However I now have a full time job (On a salary) and will be paying tax through the company etc. I do not do any self employed work anymore, what do I need to do from here?

    24 September 2012

  220. Admin

    Wait until your next tax return is issued in April 2013, then complete it by entering your final (not yet declared) months of self-employment, plus your employment income up to 5 April 2013.

    There is no way to bring your tax affairs to a close earlier, since tax is calculated on your total income for the whole tax year.

    If you have been paying Class 2 NI, you should contact the NI office to tell them you are no longer self-employed.

    24 September 2012

  221. Sarah L

    Hello, I have an Ebay business on the side and make £200 odd a month, I have been keeping accurate records ready for my first tax return but as most stock was purchased from boot sales I do not have receipts just a log of all items purchased, will this be adequate? Also do you know any sites which have a step by step to filling out the tax return online?

    Thanks for your help!

    24 September 2012

  222. Admin

    It is not ideal, but as there is not much you can do about it now, it will have to do, and you will have to hope that HMRC do not make any enquiries into your accounts.

    Although I do not use it myself, I understand that the tax return submission area of the HMRC website (for the general public) makes it as simple as possible, but there are limits as to how easy anyone can make it. The HMRC SA150 guide to filling in a tax return is 32 pages, and that is very basic. It does not even cover how to work out your business profits, for example.

    25 September 2012

  223. Phil L

    My daughter is employed part time and earns about £4,000 per year, which is below the Lower Earnings Limit for National Insurance. So, she does not pay any Class 1 NI. She also makes about £4,000 profit from self-employed work, which is below the Class 2 small earnings exception. However, her total earnings of £8,000 might suggest she ought to pay some form of NI.

    1. Is she obliged to pay NI contributions, and, if so, what?

    2. If she is not obliged to pay any NI, can she elect to pay Class 2 contributions voluntarily?

    3. If her self-employed profit rises to say £8,000, but her employed earnings remain the same, would her NI contribution be calculated solely on her self-employed profit of £8,000?

    2 October 2012

  224. Admin

    1. No.

    2. Yes, by registering as self-employed, but not applying for the Small Earnings Exception.

    3. Yes.

    3 October 2012

  225. E Liddle

    Hello. I have recently set up my own business and understand that I need to register as self employed (within 3 months). I also have a full time job where my employer handles my tax/NI through PAYE.

    My sideline role is going to be running at a loss for a couple of years as everything is going to go into equipment until we are fully set up. I understand that if I were making a profit that items bought for the business could be written off against the tax paid. As a sole trader I understand I will be classed as one and the same as my side-line business, is it therefore possible to claim tax back from what I earn on my first job (IE, writing the items I have bought for my sideline off against the tax paid on my fulltime job)? I started buying bits and pieces for my side-line at the start of the year, before starting to trade, could these also be written off?

    Thanks
    E

    4 October 2012

  226. Admin

    As explained more fully above:

    Pre-commencement expenses can be claimed as expenses; and

    Trading losses can be offset against employment income, which usually generates a tax refund.

    4 October 2012

  227. Anonymous

    I was self employed from 06/07/2012 to 13/09/2012 and CIS deductions were made at source on my gross income. I paid NI contributions by direct debit. I have now secured a full time position, I start work on the 08/10/2012 . Will I have to fill in a tax return for that 3 month period? My income was £4302.00 and CIS contributions were £860.40.

    7 October 2012

  228. Admin

    Yes, you will have to complete a tax return. Your tax for a year is worked out by adding together all income (from all sources) for that year, working out the tax on that total, and then deducting all tax already paid.

    7 October 2012

  229. Trevor

    Hi I am currently employed and on 50k+ per year. I would like to start a freelance photography business as an occasional side gig in the weekend. I don’t expect to make more than £1,000 per year unless activity picks up but it is not my objective for now. I already pay NI and tax through PAYE via my employer. What should I do in order to get started and do things by the book? I plan to do the first couple of photo-shoots for free to develop my portfolio.

    Reading the previous comments, i understand that
    - i should register as a self employed with HMRC asap
    - my tax code will be updated
    - i should ask for exemption for NI as operating profit will be below threshold of £5,315
    - i will have to submit a self assessment every year to the HMRC.

    Is there anything I am missing? What about VAT, how would that work? As long as I do my photography for free do I need to worry about anything?

    Thanks a lot. Trevor.

    25 October 2012

  230. Admin

    “What should I do in order to get started and do things by the book?”
    As per the main article. Is any part of it unclear?

    “What about VAT, how would that work?”
    You are not obliged to register for VAT at that turnover level; the current threshold is £77,000.

    “As long as I do my photography for free do I need to worry about anything?”
    If your work is no-strings-attached and for nothing in return (other than your own portfolio), it is essentially a gift and outside the tax system.

    If you are getting something from the other person in return (not necessarily money), it is taxable income based on the value of what you receive.

    27 October 2012

  231. paul

    hi - i am employed full time, but 3 weeks ago i started spray painting pram chassis for payment. I have done 2 and with material costs etc i think i have made 50 for each one. this is done in my spare time. i have 3 more bookings up until xmas and i will not be doing anymore due to my full time job being busier. do i have to register as a business even though this is only being done till xmas?

    30 October 2012

  232. Admin

    Yes, of course.

    30 October 2012

  233. john

    I’ve registered and its been 4 weeks and i still have not been allocated a Unique Taxpayer Reference number.
    do i need to follow this up?

    30 October 2012

  234. Admin

    If you need to know the number for something specific, you can contact HMRC to find out the number. They will usually post it to you if requested.

    If you do need to know the number yet, you can wait until you are sent a tax return in April.

    If you suspect that your paper registration form might have got lost in the post, and you are not paying any class 2 national insurance, you might want to contact HMRC just to confirm.

    30 October 2012

  235. Ros

    Hi,
    I’ve been self-employed for 4 years (earning about £10k per year) but will be earning £35k from permanent employment from Jan. I might carry on with some freelance work but much less (£2-4k per year perhaps). I have 4 questions:

    Will I get a new tax code?

    Will I be able to stop paying my NI Class 4 contributions when I start work?

    What is the threshold?

    What tax % would I pay on any freelance earnings?

    7 November 2012

  236. Admin

    “Will I get a new tax code?”
    You will get a tax code; what it is depends on how you fill in the P46 form.

    “Will I be able to stop paying my NI Class 4 contributions when I start work?”

    Yes, but not immediately as they are calculated annually. Did you mean Class 2 NI?

    “What is the threshold?”

    The Class 4 threshold is £7,605 in 2012/13.

    “What tax % would I pay on any freelance earnings?”
    20%.

    9 November 2012

  237. Paul

    Great site - very helpful.

    Probably not a simple question, but would there be any great advantage in setting up a limited company to receive extra earnings. I’m currently a 40% PAYE employee but currently doing some extra work on the side, probably another £10k.

    There is very little in the way of legitimate expenses that can be claimed. Should I just fill in a SA and handover the 40% tax + NI, or would a limited company help reduce this? I don’t wish to pay less than I should, but don’t want to pay more than I need to.

    Thanks!

    9 November 2012

  238. Admin

    If you are prepared to leave the money in the company until you are no longer a 40% taxpayer, you will save about £2,000 per year.

    If you want to draw out the money as soon as it is earned, there might be a small saving, but not enough to justify the expense of a limited company.

    9 November 2012

  239. Adam

    Hi, I’m currently employed full time on £20k per year. I am thinking of now also fitting in some extra freelance work to top up my income on a self employed basis too. I don’t expect to earn a lot extra in the first 12 months, certainly not between now and April 2013 (perhaps between £500 and £1000). If I register with HMRC as per your advice what do you suggest I do next on the following topics: -

    1) Do I trade using simply my own name or can I use a unique to me name and logo without implications?

    2) As a general rule, I’d pay myself 70% of the total amount I’ve been paid (leaving 30% aside for eventual tax & N.I). Does this sound sensible?

    3) Can I simply use my existing current bank accounts or should I set up a business bank account and include the costs as “costs”?

    4) Would you recommend I use an accountant at a cost to help administrate my self employed tax and NI properly to make sure things are done correctly?

    With thanks.

    16 November 2012

  240. Admin

    1) Either is fine.

    2) 30% is probably too high. On earnings under £8,000 per year, 20% should cover it.

    3) Either is fine. See http://www.brighton-accountants.com/blog/sole-trader-bank-account/

    4) I have no way of judging how competent you are at this sort of thing. Some people manage themselves, but some of the other questions on this page show some real misconceptions about how things work.

    17 November 2012

  241. Maureen

    Hi,

    I have got myself extremely confused and really hope you can help me please. This my first experience of this.

    I own a detached property and let out two of my rooms to students. I do not provide meals, just the rooms.

    Would I need to complete the property, furnished accommodation
    or the self-employment self assessment form?

    I understand that I may be eligible for the rent a room relief of £4,250.

    However, the total money I receive prior to any expenses is £9,500 and this exceeds the rent a room relief amount.

    I understand I can either deduct my gross income but not any expenses just the £4,250 from my gross income

    or deduct “allowable expenses from my gross income but no rent a room relief.

    Do these expenses include wear and tear or capital allowances from the gross income?

    The former would result in less profits, but a lower tax bill and the latter would result in higher profits, but a higher tax bill.

    Which would you advise and what form do I need to complete, please.

    Thank you so much.

    2 December 2012

  242. Admin

    You would complete the property pages of the self-assessment form, as it is highly unlikely that your rental income represents self-employment.

    Expenses can include wear and tear and capital allowances, but be aware that:

    If you are claiming the 10% wear and tear allowance, you might not be able to claim some expenses that you consider to be ‘repairs’, such as replacing equipment; and

    Capital allowances are not available on everything you buy - a new TV, for example.

    3 December 2012

  243. Dwayne

    Hello,

    I have an issue regarding national insurance, please.
    I pay Class 1 ,2 and 4 through employment and self employment.

    1. If you are both employed and self employed what is the maximum amount of national insurance I can pay before deferring?

    2. Is there a simple mathematical method of working and checking out the accuracy of my class 1 national insurance contributions?

    Many thanks for your kind assistance.

    Dwayne.

    4 December 2012

  244. Admin

    1. It is complicated, but see http://www.brighton-accountants.com/blog/national-insurance-class-4-restriction/.

    2. For most people it is basically 12% on earnings between £634 and £3,540 per month, plus 2% on anything over that.

    5 December 2012

  245. Lucy

    Hi,
    I would like to ask a question regarding my self employment. I am currently in a full time employment, but have started as a sole trader few weeks back. I have sent off the registration form to HMRC to let them know I am trading as a sole trader. Since I have a foreign name I am trading as XXX M Solutions. I wanted to ask if I have to state my full name on my invoices or will the trading name and business address(different to home address) do?

    If I have to state my name on the invoices can I use just and abbreviation of my name i.e. LS t/a XXX M Solutions or does it have to be my full name Lucy Smith t/a XXX M Solutions. Or alternatively can I just state My name and business address in the footer of the invoice?

    Many thanks for your assistance.

    5 December 2012

  246. Admin

    Yes, you do have to state your full name on your invoices (your initials by themselves are of course little use), but it can be in the footer.

    5 December 2012

  247. Steven

    Hi guys,

    This is a fantastic resource. I hope you can help.

    1. If I work from home and can claim some of my home-working expenses, do I include this amount in box 20 of form SA 102 Employment?

    2. When completing the Capital Gains tax computation sheet, why can I not include the annual exemption and deduct it from the net gains in the additional CGT computation. Why is the actual Capital Gains tax payable for the year only recorded on form SA110, box 5 and not the SA108 form?

    3. When completing the tax calculation summary form SA110, I have downloaded the tax calculation summary notes (TCSN) to help me work out my overall tax bill. When I get to the payments on account section on page TCSN 22, why do I deduct the capital gains tax figure from my overall income tax bill? How is this capital gains tax calculated and paid?

    Just want to extend my thanks, for your kind assistance.

    6 December 2012

  248. Admin

    1. Yes, if they relate to your employment (as opposed to a self-employment).

    2. I don’t think I can explain why a particular layout was chosen for their forms, but of course it does not matter if you are getting the benefit of the allowance at some stage. The reason the amount of CGT is shown on SA110 rather than the capital gains pages is that the amount payable could depend on your level of other income.

    3. CGT does not affect whether you are required to make payments on account (or how much they would be), so it is removed for that section of the calculations. The CGT actually payable for the year is due by 31 January 2013, and is added to the amount of other tax payable on the same day, and paid in the same way.

    6 December 2012

  249. sharon

    Hi
    I am employed in a PAYE job (30hrs a week) but have picked up a job which is self employed by the looks of it, in the self employed one i will be earning roughly £1767.00 a year (£8.50 hr for 4 hrs a week). I know I have to fill in a self employed form with HMRC but will i pay NI contributions and Tax on this amount if so how much roughly and will it affect my normal Tax and NI in my main job …. its all so confusing. I also receive £21.00 week tax credits, is that affected?

    Thanks

    19 December 2012

  250. Admin

    “…will i pay NI contributions and Tax on this amount…”
    Tax yes, NI no.

    “…if so how much roughly…”
    20% tax.

    “…and will it affect my normal Tax and NI in my main job.”
    No, unless you want it to.

    “I also receive £21.00 week tax credits, is that affected?”
    Probably; you should ring them and tell them.

    20 December 2012

  251. Riki

    I am self employed, coming jan31 I will fill my self assessment. In this year I also went into a long term contract and earned 20K together with by self employment earnings. My self-employment shows loss as I spent extra on advertisement etc. I have paid no taxes for contract income which I will show in my self assessment. Do I have to pay separate full 20% tax for my contract earning or can I offset the loss of my self-employed earnings into the total income together and than pay the tax on the balance total income.

    21 December 2012

  252. Admin

    The latter.

    21 December 2012

  253. Riki

    Sorry I missed, now I have gone into full time employment( which will 3months up till Jan 31) and tax will be deducted as PAYEE, do I have to show this into income in my self assessment.
    Thanks.

    21 December 2012

  254. Admin

    Yes, on your 2012/13 tax return, because it affects your overall tax calculation for that year.

    21 December 2012

  255. Mike

    Many thanks for your help.

    The equipment was purchased second-hand. I do not think I am entitled to the AIA?

    Is the tax relief limited to the WDA of 20% year on year for second hand equipment?

    mike.

    21 December 2012

  256. Admin

    There is no restriction on the AIA just because the equipment happens to be second hand.

    21 December 2012

  257. FL

    I have been a self employed gardener for a number of years and fill out a SA every year. A couple of years ago I started doing wedding flowers for friends (without payment as a wedding gift) and got in to it and did a short course with a friend. It developed, I suppose, in to an informal partnership where we have done some weddings for friends of friends and we ended up getting a logo and website. I am now trying to do my tax return for the start of this period and unsure what to include, whether I put through my expenses and income and she does hers or we do as partnership? She has paid for some stuff and me other bits and I got paid once but the rest of the couples paid her directly. Are we a partnership? Do I need to deal with that separately to my own Self Assessment? We have made no money after expenses as generally any small profit was used to pay out expenses straight away. Are we both going to get fined for not saying we were a partnership earlier?

    3 January 2013

  258. Admin

    “Are we a partnership?”
    That is the key question, which depends on the precise facts of your individual case, and I would need a lot more information before giving any sort of opinion. Often there is no clear answer; you just have to use your best judgment. If there were enough money at stake, it is the sort of thing that lawyers could spend hours arguing over.

    “We have made no money after expenses as generally any small profit was used to pay out expenses straight away.”
    You pay tax based on underlying profit, not cash flow.

    “Are we both going to get fined for not saying we were a partnership earlier?”
    Not if you are already registered once as self-employed, and you file your tax returns on time.

    3 January 2013

  259. peter

    Hi, great stuff - you should turn the questions/comments into a book (esp the latter half of the Q&As).

    Anyway, my questions:

    Firstly relating to some numbered ones:
    115 - You mention partnering with a spouse. Mine works PT, earning c.£5k per year. If I were to partner with her (sure there is something she could do, and we aren’t planning a divorce!) would that be advantageous to us, or just create more paperwork than it gives back?

    Also, with spouses and partnership, if she wanted to then do more self employed work, but was different from the work we were initially setting up to do, are there advantages in setting up herself again as a ST, or can the work be anything we like so long as we report the various income streams seperatly in the return?

    328 - you mention you need to include your full name - is this first any middles and last or just first and last, or what you put when you register with HMRC?

    343 - I have read NI2 but am still a little unsure as to how this relates to me. I earn c.£34k per year (close to your £35k no NI2 note) would I only pay NI2 £2.50 contributions up to that threshold in a similar vein to what is set out in the NI4 worked example?

    Also whilst talking NI. If I decide to pay through my PAYE contributions through work, I assume my employer doesn’t get hit with any extra contributions themselves - or that is they do, they just reclaim that back? I’m guessing this is a tax code thing. To be honest, the NI stuff is the only bits I really cant get my head around.

    I cant remember the ones you discuss bank accounts, but if using a regular personal account for receiving income, does the bank have to be informed? I assume not, as in they don’t need to know where my current wages come from?

    Again, more than useful stuff here - hopefully people do read all the Q&As as they answer a lot of concerns people may have.

    Thanks for your advice

    Peter

    4 January 2013

  260. Admin

    You deserve some sort of award for reading every single comment!

    “115 - You mention partnering with a spouse. Mine works PT, earning c.£5k per year. If I were to partner with her (sure there is something she could do, and we aren’t planning a divorce!) would that be advantageous to us, or just create more paperwork than it gives back?”

    It would definitely create more paperwork, and it could possibly be beneficial; it all rather depends on your individual circumstances.

    “Also, with spouses and partnership, if she wanted to then do more self employed work, but was different from the work we were initially setting up to do, are there advantages in setting up herself again as a ST, or can the work be anything we like so long as we report the various income streams seperatly in the return?”

    You only register as self-employed once, but you report the income for each business separately.

    “328 - you mention you need to include your full name - is this first any middles and last or just first and last, or what you put when you register with HMRC?”

    You have to use your full surname, but you can use an abbreviation or initial of your first name. I’m not sure about middle names, if you have one. This has nothing to do with registering with HMRC, it is a separate requirement.

    “343 - I have read NI2 but am still a little unsure as to how this relates to me. I earn c.£34k per year (close to your £35k no NI2 note) would I only pay NI2 £2.50 contributions up to that threshold in a similar vein to what is set out in the NI4 worked example?“

    There is a maximum amount of Class 1 and 2 NI you pay each year, but it is complicated and depends on many things. See here as a very technical starting point.

    “Also whilst talking NI. If I decide to pay through my PAYE contributions through work, I assume my employer doesn’t get hit with any extra contributions themselves - or that is they do, they just reclaim that back?”

    I’m not sure I understand. Neither PAYE nor NI are optional. An employer has to pay Employers’ NI, and does not claim it back.

    “I cant remember the ones you discuss bank accounts, but if using a regular personal account for receiving income, does the bank have to be informed?”

    It depends on the detailed terms and conditions for that particular account. If you do not tell them, they might work out for themselves that you are using a personal account for business purposes, and then try to charge you for it. See here.

    5 January 2013

  261. Michael

    I am currently employed full time and have been paying the basic 20% tax between April 2012 and now. I have started my own sole trader company and informed HMRC. I have currently spent around 20K on development and am not expecting to make any sales for at least 8 months.

    I’m very confused and there seem to be many answers.

    I will have net business loss of £20K and my tax paid on full time work will have been roughly £5K.

    Can i reclaim the tax i have already paid on full time work?

    Will my tax code change as i think i can carry the loss forward?

    How does it work?

    Many thanks

    9 January 2013

  262. Admin

    I’m not going to be able to provide a full answer, but basically:

    1. You need to establish what sort of tax relief your development expenditure qualifies for. As in, what sort of capital allowances. It might be immediate, it might not. This will depend on the precise nature of the expenditure.

    2. If it is immediate, it is treated as incurred on the first day you start to trade, which is generally the first day the business is in a position to supply goods or a service.

    3. In that tax year, you can offset your business losses (including your development expenditure, if it qualifies under (1.) above) against your employment income. This will generate a tax refund, of the tax that you paid on your employment.

    4. You either claim the loss in the first year, or carry it forward. You cannot do both.

    10 January 2013

  263. Patri

    I have been working in a bar for 9 months, I have a contract although my payslip has a tax code 810L. I pay 0% of taxes as my total gross is till now 5000. Till here everything sound OK. On the other hand, I started to work as a Spanish teacher 2 months ago, in a private school. I don’t have a contract, but I get paid monthly in by bank account. When I started the job they told me they wouldn’t pay the taxes, as I were self-employed. I didn’t know what this mean. I thought I didn’t have to do nothing. Now I am scared I could get a fine, because I have got my first salary with the school and didn’t pay any taxes. Should I register as a self-employed in the HMRC? Even if I work only 7 hours a week at the school, and it is just a temporary job, without contract? Will my amount of taxes change if I leave the job at the bar?

    Thanks

    10 January 2013

  264. Admin

    “I have been working in a bar for 9 months, I have a contract although my payslip has a tax code 810L.”
    That is the correct code.

    “Should I register as a self-employed in the HMRC?”
    Use the HMRC status indicator tool at http://www.hmrc.gov.uk/calcs/esi.htm. If it says you are employed, you should probably contact HMRC for advice. If it says you are self-employed, you should probably register as a self-employed. As you have only been working there for 2 months, there is no possibility of any fines.

    10 January 2013

  265. Lee

    I started working for an agency, and my first payment was PAYE. Then throughout the tax year I was 100% S/E. Apart from some periods where I was claiming JSA. I now am having problems completing my self assessment online. As I can’t find my P45s or my P60 form! I didn’t think I needed them as tax was paid on every payment! Who can help me please?

    15 January 2013

  266. Admin

    You can get the information needed on your PAYE income from your payslips. If you have lost them as well as the P45, you will need to contact the agency or HMRC for the information.

    The information from your JSA (which is partly or fully taxable) can be found from the P45 you should have been given when you stopped claiming, or your bank statements (if it was fully taxable).

    15 January 2013

  267. Marci

    Hi admin, this is brilliant site. I am just about to do my first SA online. From the previous comments (and I’ve read them all) I got a lot of answers. Thank you.
    In that tax year I managed to be unemployed, later - employed (part time) and self employed at the same time. Now I know I need to include JSA amount from P45 + the amount from P60 = total earnings from employed job + how much I made from my self employment on the top of that. I will definitely be paying tax because I am well over £7545 in my employed job.
    1. My question is, I am a makeup artist&hairstylist and also a yoga teacher. According to your answer (n. 192) I need to separate it as two businesses on one SA. Makeup made me some money but yoga not so much so far, it appears as loss, I thought it would be better and easier not to complicate it and put it together this year but perhaps that is strictly a big no and if I would do it now I wouldn’t be able to separate it in the future…? Yoga “business” happened closer to the end of tax year - I paid yoga teacher insurance £110, also bought a yoga mat £20, taught twice yoga outside and earned only £18 for those 2 sessions. But I am still planning to teach yoga in future and give up employment instead.

    2. I have lost about half of the receipts when moving, so my tax will be higher then it should actually be with less expenses included. My fault. I also know certain things cannot be classed as expenses if they are likely to be used in business for over 2 years. I have read about one off annual investment allowance or if it is in first year of business.
    I got two things which I bought for solely business purposes; iPad loaded with my portfolio and inspirational images hair&makeup for showing the clients and discussing the desired look, or searching online certain look (with client), and bike which I used to travel to the photography studio where regularly freelancing and also planned to use when teaching yoga on locations, but eventually using both of the items a bit in my spare time, too. If these two classed as AIA I still would include only percentage of them as I use them in private life? Is this correct? Also by having bike I am saving the environment, could that count as 100% first year allowance because it is environmentally beneficial? I would of course use smaller percentage anyway.

    I am just trying to do everything right and not to work against HMRC or myself.
    Thank you beforehand for your help. Kind regards Marci

    16 January 2013

  268. Admin

    1. It is better to start off by presenting your businesses the right way (ie separately) from the very start. If one business splits into 2 in a later year, it might raise questions. You can offset your yoga loss against your other income anyway.

    2. You don’t necessarily have to have the receipt to claim the expense. You might be able to prove the expense in another way, for example, on a bank statement, or as part of a regular pattern in your business.

    You should only claim AIA on the business % of your ipad and bike. The green credentials of your bike are admirable, but the tax relief is still limited to your business use.

    16 January 2013

  269. Mike

    Hi there,

    I have a full time job (18k) and paying my normal tax… But i have been doing photography work for just over a year now Dec 2011 thinking I wouldn’t earn much, but i have summed the year as - £9k income with about £4 - 5k outgoings. I was just wanting build up my photography gear as I’d like to go full time in the near future. I’m genuinely not trying to dodge tax but after some research, I feel like I may have done something wrong. I’d really appreciate any advice on what I should do next and when by? Also, I need a car for the job and wondered how that worked against expenses?

    Hope you can answer my questions and any help is appreciated!

    16 January 2013

  270. Admin

    You should probably register with HMRC as soon as possible. If there is tax due, there will also be some penalties to pay, but if you had to buy a lot of equipment in the first 3 months to get started, there might not be tax due.

    “Also, I need a car for the job and wondered how that worked against expenses?”
    I cannot cover all of that here, but basically you can claim the business % (ie the photography %) of all the car running expenses, plus the business % of any capital allowances based on the value of the car when the business started. Alternatively, you can claim 45p per business (photography) mile.

    16 January 2013

  271. Mike

    Thanks Admin

    I’m more than happy to cover all I owe as I’ve always kept my money in a separate business account and never spent any of my earnings on my self. I could ask you questions all day, but I’ll save them for the HMRC meeting. Do you think it would be best to organise a meeting to register? My main question - If i do get penalties, will this go on my record and name me as a ‘bad debtor’, or something along those lines? As my wife an I are hoping to buy a house soon and I wouldn’t want it to affect our mortgage. Thanks again for your help! Mike

    17 January 2013

  272. Admin

    Your tax compliance failure is still very minor. If you register immediately, and then file the resulting tax return promptly, the penalties are unlikely to be more than £200. HMRC are highly unlikely to require a meeting.

    Your penalties will be on your HMRC record, but will not be made known to anyone else.

    17 January 2013

  273. Marci

    Thank you very much indeed for your answers!

    I have separated both self employed jobs, included employed job and JSA from earlier, but there is a question in SA if I had “any tax refunded or off-set by them or JobCentre Plus in that tax year”. What is it? Where do I find the figure? I have not asked for any refund as far as I know. But when I started employed job after unemployment, I remember that they did return me some of tax in some of my first wages, I have noticed that on my payslips. Is it what is meant by tax refunded/off-set? Does it also mean that the amount on P60 - the tax deducted is not right? It seems that being employed and self employed at the same time constantly rises up a lot of questions. Thank you for your kind help.

    17 January 2013

  274. Admin

    This is asking about a tax refund direct from HMRC, or through your JSA payments, which would appear on the P45 you got when you stopped claiming. This is quite unusual. It is not asking about tax refunds through your job.

    18 January 2013

  275. Richard

    Hi.
    Currently employed and pay tax at 40 percent level.

    Looking to buy a house and rent all rooms out separately. I will have income from room, with expenses being mortgage interest, various utility, wear and tear and safety bills, but with a profit of a few thousand each year.

    What level of tax would I pay on the profits? Would I need to register as self employed? Mortgage is in my name but as my daughter would manage this would it be better for her to run this as her main job in her name? Want it all above board.

    Thanks

    20 January 2013

  276. Admin

    “What level of tax would I pay on the profits?”
    40%, unless your total income approaches £150,000, in which case 50% (reducing to 45% in April).

    “Would I need to register as self employed?”
    Renting out a house is not self-employment, unless it is holiday accommodation, or you are providing additional services such as meals, laundry. But you would still need to register for self assessment by reason of having rental income, using form SA1.

    “Mortgage is in my name but as my daughter would manage this would it be better for her to run this as her main job in her name?”
    If you are entitled to the income from the property, it is taxable on you. You cannot simply decide to have it taxed in someone else’s name. However you can pay your daughter a wage, as long as it is a reasonable amount for the work she actually does on managing the property on your behalf. This may require setting up a payroll scheme with HMRC.

    20 January 2013

  277. Dozy

    Hi, i am employed but received training to be a consultant for an insurance company. I am not working but they have given me id card and registered me with FSA and given me ID and everything with a start date in Oct 2012. I do not intend to work or earn anything till April 2013. Do i still need to register and start paying NI?

    21 January 2013

  278. Admin

    No, not yet.

    21 January 2013

  279. Dozy

    Do i have to file tax return for this year if I received the following mail from company..

    we are delighted to confirm you are now registered as an Appointed representative of Xxxx with the effective date of 10th Nov 2012.

    If yes what will be the last date.

    Do i still have to file tax return if i cancel my subscription with them now? How easy is it ?

    21 January 2013

  280. Admin

    You being registered in some way with a commercial company does not affect whether you are registered as self-employed with the tax office, or whether you need to be.

    22 January 2013

  281. Richard

    Hi, I will have income from renting rooms for fixed all inclusive amount, against incurring costs for: mortgage interest, gas, electric, council tax, insurance, fire alarm tests, gas cert, electric cert, cleaning, maintenance.

    Can all these be claimed as expenses on my return. If not then could I say the room charges are split rent and share of bills so my income is reduced

    Thanks in advance

    22 January 2013

  282. Admin

    It sounds as if all of those expenses could be claimed.

    23 January 2013

  283. Hk

    Is it true that we don’t have to register self employed within 3 months anymore?

    24 January 2013

  284. Admin

    The £100 penalty for not registering within 3 months has gone, if that is what you mean.

    24 January 2013

  285. Andrew

    Hi, I am currently on paye and did some extra work for a another company last year (2012) and invoiced twice, first in March and second in June totaling about 4k. I haven’t registered as self employed. Will i get a penalty fine if i register online before 31 Jan?

    24 January 2013

  286. Admin

    If you register before 31 January, and then file your tax return and pay the tax promptly, there probably won’t be a penalty.

    24 January 2013

  287. Kevin Singh

    Hi
    I have a full time job which pays me £17000 per annum before tax and i work as self employed with a net profit of £4085 for the tax year 2011-2012.
    I filed my tax return online last night but it shows as £0 tax to be paid.
    Did I make some mistake in filing tax return.
    Or is it £0 because of taxable allowance benefit as net profit is below £7475.
    Please advise as i am confused on which income i need to pay tax (as i am already paying tax on my salaried income)

    25 January 2013

  288. Admin

    It sounds like you made a mistake.

    Tax is calculated on your total income, then you are given credit for any tax already paid through PAYE.

    A common mistake is thinking that you do not need to enter your employment income on your tax return, because you have already paid tax on it. It doesn’t work like that.

    25 January 2013

  289. Kevin Singh

    So I need to pay tax on £13610 (£17000+£4495-£7475-£410)?
    So does this tax credit will come monthly as paying tax on £13610 will seriously jeopardise mine liquid position (as i just saved wee money to pay tax on mine self employed income)

    Thanks

    25 January 2013

  290. Admin

    “So I need to pay tax on £13610 (£17000+£4495-£7475-£410)?”
    Yes. That is the total income on which your total tax is calculated.

    “So does this tax credit will come monthly as paying tax on £13610 will seriously jeopardise mine liquid position (as i just saved wee money to pay tax on mine self employed income).”

    Full and immediate credit is given for the tax taken off your salary each month in 2011-12. If your PAYE tax code was correct, you will probably find that your tax bill is around £817.

    25 January 2013

  291. Steveo Koneveo

    I work full time in a school and have recently completed some artwork that needs to be paid separately to my wage as i worked in my own time to produce for the school!

    The school manager has asked me to provide a tax code for my business? As this is just a one off and i don’t have a business i don’t know what i need to do?

    25 January 2013

  292. Admin

    The use of “tax code” by a layperson could mean anything. I don’t think I can guess at what he is getting at. Perhaps speak to him directly, to get more clarification?

    25 January 2013

  293. Jim Mack

    Hi
    Thanks for all your excellent advice.
    I used to be full time freelance but have been employed on paye for several years now. I still do around 10 days freelance work a year. Can I still claim a proportion of my household expenses for a room I use as an office/study?

    26 January 2013

  294. Admin

    Yes.

    In the unlikely event that the room is used exclusively for your 10 days of business each year, you can claim a % based on space. You might have some capital gains tax implications when you sell the house.

    If the room also has some other use at different times, you will also have to restrict the proportion based on time, so you end up with a tiny %, probably under 1% (based on 10 days).

    27 January 2013

  295. Ben

    I have earned 42K in PAYE. In 2011\12 I earned about 7K gross as an entertainer\DJ. First year I have ever done it. I have taken off expenses and capital allowances - Music Equipment\Transport Taxis\Mobile phone bills (part of) which brings me under the 5.5K NIC2 payments - is this correct that I don’t pay it (I have got an exemption cert). I phoned the National Insurance dept and they seemed to think so.

    I am right in saying that the next time I pay tax will be 31 January 2014? There is something on the HMRC site saying that I have to pay the first payment on this year’s tax, but how can I when I haven’t finished my PAYE employment (where I usually get a bonus and my Self Assessment period hasn’t finished either)? Thanks for your very helpful answers.

    27 January 2013

  296. Admin

    If you are under the class 2 NI small earnings threshold, you do not have to pay it.

    You probably have tax to pay on 31 January 2013. Then, as above:

    “If the tax and NI payable from your tax return is over £1,000 per year, and this total is more than 20% of your total tax paid for the year, then you may have to start making advance payments on account of tax every 6 months.”

    These would be due on 31 January 2013 and 31 July 2013. It is based on your liability for the previous year, as they assume your income stays similar. It does not need to be exact, so it does not need to wait until after the tax year has finished. It is just a payment on account, with any underpayment or overpayment dealt with later.

    28 January 2013

  297. Margaret K

    I am trying to register online for self assessment of tax for my very small craft business. However this question has me confused

    Are you working for one person or firm only?

    Does this mean as self-employed or any/all employment? I am currently employed as a Teaching Assistant for 32 hours a week so I am working for one company as self-employed and one as an employee - do I need to answer Yes or No??

    I have tried to read all the info above but can’t see the answer anywhere so apologies if it is and I’ve missed it!
    Thank you

    29 January 2013

  298. Admin

    This question relates to your self-employment. Assuming you have more than one customer, you would answer No.

    29 January 2013

  299. steve l

    Hi, great info, big thank you, I am employed full time and about to register a second job as self employed with a business as a photographer starting at the end of march 2013, as the majority of my equipment has been bought second hand over several years and no receipts to hand is it still possible to set this against tax in the first year, approx value of camera gear is £3000,

    Thank you Steve

    5 February 2013

  300. Admin

    Yes, but you will need a record of exactly what it is, and its market value (in its used condition) when the business started.

    5 February 2013

  301. steve r

    Well to start with. This blog is making more sense than anything else I’ve seen on the net. Keep up the good work.

    Couple of Questions. I’m looking at registering Sole Trader for the start of the tax year in April. However, having read some of the questions above i think some words of wisdom would be nice, as I’ve been slowly buying stock (which is to resale) since Aug 2012 with spare money as and when its been available. Do i need to reg now and claim for it or can i add it to the 2013/14 self assessment?? None has been sold as of yet, its if you like my startup money in stock rather than buying from April 2013.

    Any advice would be greatly appreciated

    11 February 2013

  302. Admin

    You need to decide on the date the business started, which is generally the first day the business is in a position to supply goods. At the moment it sounds like you are preparing to trade, which is not the same as the business starting. Your business is likely to start on the day you begin actively selling. The date you register for self assessment is determined by the date the business started, not the other way round.

    The date the business starts determines the first tax year for which you need a self assessment. That is when you claim all your pre-trading expenses.

    Note however that you do not necessarily claim all your stock purchases as an expense straight away. As above: “In fact, buying stock is a payment, but not an expense. It only becomes an expense when you no longer have it, usually because you have sold it. You pay tax based on profits, not payments.”

    11 February 2013

  303. Alan

    I receive income in the form of publishing royalties and fees each year of varying amount but always below £5000. I am also paying higher-rate tax based on my regular employment. As the income is paid into a joint account with my wife, can it be treated as her income? As she is not currently earning, this would fall within her tax allowance.

    11 February 2013

  304. Admin

    No. Bank accounts are largely irrelevant. It is your income.

    11 February 2013

  305. Joseph

    I am employed part-time and am paid on a hourly basis (standard 40 hours per month). My earnings are below the tax/NI thresholds but I still live with parents and so have very few outgoings. Due to my low income from my employment I am actively trying to find paid work as a freelance writer to supplement my low income and in anticipation of this I decided to register for self-assessment as self-employed. However, I am unsure what to do should the worst happen and I do not obtain any paid freelance work by the time it comes to completing my first self-assessment form. Should I have waited until I had received my first paid freelance work before registering? Can I attach a letter to my self-assessment stating that I have not worked on a freelance basis as anticipated? And lastly do I need to keep any records of money spent on items relating to the efforts to obtain freelance work, if submitted articles/other work is not ultimately paid for?

    16 February 2013

  306. Admin

    The point here is that you are actively looking for paid work, and incurring expenses in doing so. You were therefore correct to register. On your tax return, in the self employment section, enter your expenses, and nil income. You will probably want to carry the resulting losses forward, rather than offset them in the same year. Then, use the explanation box provided in the tax return to write a very brief explanation. As long as it does not go on for more than 6 months with no work, and the expenses are modest, that should be fine.

    18 February 2013

  307. Dan

    Hi I only have a quick question.
    Still don’t know if I’m doing that but..
    Let’s say I get self-employed soon and that will be my only job.
    If I earn less than my personal allowance (around £8000 for 2013-2014?),
    will I have to pay tax at the end of the year? or not?
    thanks for your attention.

    18 February 2013

  308. Admin

    If your total taxable income is less than the personal allowance, you will not have to pay any tax. You might however have a liability to national insurance.

    20 February 2013

  309. Wayne

    Its now end Feb. I am Full Time Employed paying 40% tax (in fact now lost my personal allowance).

    I have done some ‘property related’ on/off work (<£1000) thru the yr invoicable and will now step up to much greater self employed income (property related) from 1st April. I have not yet registered self employed with HMRC. My expenses including ‘property training’ amount to more than £1000 so far.

    My Qs (I promise I did try to read thru all the comments before this, very useful btw)

    1. Can the whole loss be offset vs my employed income

    2. Can I back date self employment start date to earlier in the yr

    3. Can I offset expenses incl directly related training (since they are not pre-startup since they were following 1st invoiced sale)

    4. PC purchases in March say £2k are they offsettable in full, capital allowance at 20% or worst case 1/12 of capital allowance ?

    5. If I Exchange on an investment property during March but Complete in April; are the associated purchase costs and poss capital allowances (if relevant) offsettable in this financial yr or next ?

    22 February 2013

  310. Admin

    “1. Can the whole loss be offset vs my employed income”
    Theoretically yes, but the first step is to work out the correct amount of the allowable loss.

    “2. Can I back date self employment start date to earlier in the yr”
    Yes.

    “3. Can I offset expenses incl directly related training (since they are not pre-startup since they were following 1st invoiced sale)”
    The training costs of learning a new skill are generally not tax deductible. The fact that you did a very small amount of work before that training is unlikely to convert the training into a maintenance update of existing skills, which is what would be tax deductible.

    “4. PC purchases in March say £2k are they offsettable in full, capital allowance at 20% or worst case 1/12 of capital allowance ?”
    Claimable in full, as Annual Investment Allowance, but only for the % relating to business use.

    “5. If I Exchange on an investment property during March but Complete in April; are the associated purchase costs and poss capital allowances (if relevant) offsettable in this financial yr or next ?”
    The date of exchange is generally the relevant date. The purchase of a property to develop and then sell is a payment but not an expense. Capital allowances are not available on residential property, only industrial and agricultural buildings.

    22 February 2013

  311. Nick

    Please accept my apologies if you have already answered this question.

    Where you say in your example “As this is more than £1,000, and it is more than 20% of the total tax paid for the year, a payment of £1,124.87 (50% of the January payment) will also be required in January 2013 and July 2013.”, is this payment in addition to the £2294.75 you would have already paid?

    Thanks.

    25 February 2013

  312. Admin

    “is this payment in addition to the £2294.75 you would have already paid?”

    Yes. I have amended the example to make that clearer. Thanks.

    25 February 2013

  313. Colin

    I have a full time job but qualified as an ADI as a fall back job. I have been offered to teach a student in my spare time which will earn around £345 (£45 being the test cost itself) from the remaining £300 I need to remove cost for diesel, ADI insurance, extra wear and tear on car. Do I register as a company albeit I may not earn anymore or just inform taxman. How do I gauge what is not profit. Sorry just confused and want to do it correctly.

    27 February 2013

  314. Admin

    “Do I register as a company albeit I may not earn anymore or just inform taxman.”

    “Companies” generally mean limited companies; the question is do you register as self-employed. If you have made a profit, you have to declare it, either by registering as a business, or requesting a tax return using an SA1 form then disclosing the income as casual income. The choice will mainly depend on how regular the work is, and how long it went on for. The fact that you have now stopped does not mean you can avoid declaring any profit altogether. If you have made a loss you can choose to declare it to get the tax relief against your employment income, or ignore it.

    “How do I gauge what is not profit.”

    See the section “How do I work out my taxable profits?” in the article.

    27 February 2013

  315. stu

    Can I pay my 20% tax on what I’ve earnt at the end of each month instead of waiting till the end of the tax year?

    28 February 2013

  316. Admin

    The tax is always calculated yearly. You can send them some money on account each month, but you are probably better off transferring the money to a savings account instead.

    28 February 2013

  317. Sharon Lewis

    Brilliant website

    I work 36 hours a week, in a school (term time only) taking home £1070 a month. I pay NIC and tax on this income (code 810L). I receive tax credits and am a single parent. To improve my income I am an AVON lady. Since April 2012 I have earned £350 (and have not even deducted things like electricity, paper, ink, petrol - don’t have a clue who to start working that out!).

    I rang HMRC to register as self-employed. HMRC asked if I would like to pay NIC at £2.65 a week, it would be pointless continuing with AVON if I had to pay this. I was given two options (1) pay NIC) (2) exempt myself. I went with option to exempt myself. Have I done the right thing? It seems such a lot of hassle when my AVON income is so low, no wonder direct sellers prefer to think their income is cash in hand.

    Advice greatly received, especially as HMRC are targeting direct sellers in their latest online campaign.

    1 March 2013

  318. Admin

    “I went with option to exempt myself. Have I done the right thing?”

    Payment of Class 2 NI counts towards Incapacity Benefit, the basic State Pension, bereavement benefits and Maternity Allowance. If you are happy that your employment NI is covering those, there is no point paying Class 2.

    1 March 2013

  319. helen g

    hi, am thinking of starting up small business with a friend so understand that we would register this as a new business and a partnership. However, i would have no other income whereas my friend will remain in full-time employment. am i correct in thinking that we both would complete separate tax returns and basically end of year profit would be split 50/50 so i would only pay any tax and NI if my 50% share of profits exceeds own personal allowance? whereas my friend would also include her full time employment details so as income already exceeds personal allowance, would automatically pay tax on all her share of profits?

    with regards to NI contributions, we expect profits to be far below lower threshold so would apply for exception for class 2 contributions but again would we both need to do this based on 50/50 split and would my friend still qualify for NI exception in full time employment (wage approx 21k)?

    thanks for your time

    2 March 2013

  320. Admin

    “am i correct in thinking that we both would complete separate tax returns and basically end of year profit would be split 50/50″

    You can choose any partnership profit split that you both agree on. However, this has to apply in reality, not just for tax purposes.

    You will need to complete an individual tax return each, plus one joint partnership return.

    “so i would only pay any tax and NI if my 50% share of profits exceeds own personal allowance?”

    Yes.

    “whereas my friend would also include her full time employment details so as income already exceeds personal allowance, would automatically pay tax on all her share of profits?”

    Yes.

    “with regards to NI contributions, we expect profits to be far below lower threshold so would apply for exception for class 2 contributions but again would we both need to do this based on 50/50 split”

    Yes. Your NI is worked out individually.

    “would my friend still qualify for NI exception in full time employment (wage approx 21k)?”

    Yes.

    2 March 2013

  321. Jeff

    Hi there,

    As this seems to be a place where people get sensible and well-informed answers I’ll try my luck with my question.

    I am in full-time employment (~30k), pay tax and NI though my employer. I started a small company (completely unrelated in nature to my main job) last summer and registered as self employed/sole trader. As my products are either self-manufactured or made by sub-contractors I have expenses in material, equipment, contractor charges, costs of my e-shop, research etc. By the end of the tax year my gross takings from sales will be ca. £1500 (very small), while my expenses are about double that though. I was expecting this and can handle it (at least for the first year), but HMRC have told me over the phone that I can claim a tax refund for expenses though tax paid in my first job. Is this really the case? And what would be the correct procedures for my tax return and tax refund? I haven’t found information about such a case on the HMRC website…

    Many thanks for your help in advance!!

    3 March 2013

  322. Admin

    You will be issued with a tax return (notice) in April. Enter your employment income in the employment section, and your self employed income in the Self Employment section. If your self employment made a loss (remember to allow for closing stock), you have the option on the form of offsetting that loss against your employment income, which will probably generate a tax refund (it might also by affected by your PAYE tax code).

    4 March 2013

  323. Boni

    Hi, if I am going to work as part time cleaner and will have a total income of about 800-1000/month, how am I going to file for a self-employment?

    4 March 2013

  324. Admin

    Seriously?

    What did you do; read the page title, then jump straight to the bottom to bash out your question?

    How can this question possibly not be answered by the main article, and then over 300 related comments?

    In this particular case, on only the third paragraph, it says, “Registering is very straightforward, and can be done online on this page of the HMRC website.”

    Sadly I get quite a few questions showing this level of effort.

    5 March 2013

  325. Angie

    Hi,

    I’m a single parent and work full-time earning around £25K, I also receive Disability Living Allowance for my children but know this will end in the next year or two as they reach sixteen and Child Tax Credits (not working) which will reduce as I lose the DLA.

    To compensate for a reduction in my regular income I have been offered some admin work to do by a Ltd company and as he is small he doesn’t want to do PAYE & NI. So I will have to cover the tax implications. The work will be sporadic so I won’t know how much I will earn.

    Do I register with HMRC as self-employed and at what point? ie when I do the first piece of work or before.

    The Ltd company want to pay me by invoice, can this just be my name & home address?

    Will this effect my council tax by working from home?

    Will I need an accountant as I won’t have any real expenses as the work will be via email?

    I went through all the above comments and they were helpful to understand that my main employer doesn’t need to know.

    5 October 2014

  326. Admin

    “Do I register with HMRC as self-employed and at what point? ie when I do the first piece of work or before.”

    It is best to register promptly. This usually means within a month or 2 of starting, when you are 99% sure there will be some income to report.

    “The Ltd company want to pay me by invoice, can this just be my name & home address?”

    Yes.

    “Will this effect my council tax by working from home?”

    No, not unless you have customers and suppliers visiting you there.

    “Will I need an accountant as I won’t have any real expenses as the work will be via email?”

    It would be difficult for me to judge your abilities without ever having spoken with you, but plenty of members of the public in your situation manage to do it themselves. You are not obliged to use an accountant. It basically comes down to how much you dislike the prospect of spending time reading tax helpsheets and filling in tax forms, and how willing you are to pay someone else to avoid that, neither of which I can decide for you.

    6 October 2014

  327. lynn

    I am self employed earn less than £3,200.00 year do I still have to pay national insurance?

    3 November 2014

  328. Admin

    No.

    3 November 2014

  329. Jane

    I am employed full time and have never been self employed, but have this year done two engagements outside of my job which I’ve just been paid for but which will not repeat. The jobs were supposed to be paid through my PAYE and taxed via PAYE but instead I’ve been paid directly. Obviously these will be taxable as the total amount earned is around £4000 but do I need to register as self employed and pay the tax that way, despite that fact that I will not be doing any other self employed works?

    4 November 2014

  330. Admin

    On the basis that this is casual, non-recurring work, you do not need to register as self-employed. Instead, apply for a tax return by completing paper form SA1 or online here. When the time comes to do the tax return, declare the income as “Other income”. If you are submitting the tax return on paper, assuming the box numbers stay the same, it goes in boxes 16 and 17 on page TR3.

    4 November 2014

  331. Lynn

    Hi I have been registered as self employed since January 2012 working solely on my own, I have now joined my friend in her business where she is registered as self employed, it is a small cash only business and we split the income at the end of each week and put the same in each for expenses, we would like to continue to complete our own self assessments but have been unable to find clear information about if we can continue to do this or if we have to register as a joint business.

    4 November 2014

  332. Admin

    This is a question about whether you have formed a “partnership”, which then changes your tax position. This is not easy to answer.

    The legal definition of a partnership is: “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit”, which is not very helpful, so you have to look at the details of your arrangement. The receipt of a share of net profits is good evidence of partnership, but not conclusive. The intention of the parties (whether they want a partnership, or not) is also relevant. An overall view will need to be formed, which I appreciate is difficult to do, but without a lot more information about your situation, I cannot say much more.

    If your combined sales would require you to register for VAT (broadly, required if sales are £81,000 or more per year), but your individual sales do not, then I would strongly recommend you get some proper professional advice.

    4 November 2014

  333. Colleen

    Hi there, I have tried reading through all these posts but its taking forever and I still don’t get it lol, I am currently working full time earning 29k yearly. I have just began to set up a small self employed venture which I will do in my spare time on a part-time basis. I haven’t registered yet as plans are still in process. My projected profit will be around £500 p/m. What combined % of tax and NI will I be expected to pay do you think? Thanks :-)

    6 November 2014

  334. Admin

    Your yearly self-employed income is 12*£500 = £6,000.

    When added to your employment income, this is £35,000, which is below the higher-rate tax threshold of £41,450. Therefore your monthly tax will be 20% of £500 = £100.

    Your yearly self-employed income of £6,000 is above the class 2 national insurance threshold of £5,725, so you will have to pay that at £2.70 per week. In practice, this is paid monthly or 6-monthly, and is set up when you register your business.

    Your yearly self-employed income of £6,000 is below the class 4 national insurance threshold of £7,755, so you will not have to pay that.

    6 November 2014

  335. Steve

    Hello,

    I’ve recently started working self-employed as a graphic designer and I’m also employed full-time as a graphic designer. My full-time earnings are 18k per year. Since 1.08.14 I’ve earned £3360 from my self-employed venture and bought equipment (computer and hard drive totalling £1600). I have a 2 part question please:

    1. Will I have to pay 20% tax on the full £3360 even though I’ve had to purchase equipment costing £1600 to do my work from home?

    2. Also will I be able to claim expenses for working from home in the spare room?

    Any advice is much appreciated!

    Many thanks,

    Steve

    6 November 2014

  336. Admin

    1. You will be able to claim a deduction based on the purchase of the equipment, as part of your Annual Investment Allowance, which is a type of capital allowance. If the equipment is solely for business use, you will be able to claim 100%. If it is general purpose equipment, with some private use, you will only be able to claim the business %.

    2. Yes. If your spare room was solely used for the writing since August, you can claim a space-based proportion of your household expenses each month. You might have some capital gains tax implications when you sell the house, as your business use will restrict your Principal Private Residence relief.

    If your spare room has also had other ongoing use since August, you will also have to restrict the proportion based on time, which typically gives you a very small %, but your Principal Private Residence relief is not affected.

    Alternatively, since April 2013 you have been able to claim the following flat rate amounts based on hours worked at home per month:
    25 or more = £10 per month
    51 or more = £18 per month
    101 or more = £26 per month

    7 November 2014

  337. Laura Carroll

    Hello,
    I’ve been reading your page and some of the comments above and am now slightly concerned about filling out my tax return.
    I work full time and earn 20K a year. I started a small wedding business in May 2013 and am now looking to fill out my tax return.
    The business made no money in the first year as we had to pay everything back into for stock. I assumed this meant I would pay no tax but have just read something above that says this is a common mistake to make?
    Are you able to clarify if I should be paying tax even though there was no profit and how they would calculate this?

    Thanks in advance

    7 November 2014

  338. Admin

    “…even though there was no profit…”

    There was a profit though. You mean there was no net cash inflow. It might sound like accounting jargon, but they really are different things.

    Anyway, for the tax year ended 5 April 2014 most small businesses have been allowed for the first time to submit tax figures on a cash basis. You have to opt in to using this method on the tax return, and it comes with some drawbacks, such as not being able to offset any “losses” against other income, and a cap on the amount of interest you can claim.

    In your case, using this method will result in you paying lower tax when your stock is increasing, and more tax when your stock is going down. Over the lifetime of the business, it shouldn’t make any overall difference.

    8 November 2014

  339. Laura

    Thanks for that. So even if my revenue for the business is less than 9K will I still have to pay tax as this would effectively be added to my salary earnings?

    9 November 2014

  340. Admin

    “Revenue” is sales before any expenses, and I am not sure where 9K comes from, but the basic idea is that your “profit” is added to your salary earnings in calculating the tax. You do not get a separate allowance for your business.

    10 November 2014

  341. Karen

    Hi.

    I am currently employed part time (earn approx 18k through PAYE).

    I fill in a self assessment for rental income too for one property.

    I am now starting freelance admin - self employed.

    My question is - do I have to speak to HMRC and tell them about my freelance self employment or can I just add it to the same self assessment form that I use for rental income as I already have a UTR? Just wondering if the type of form changes or specific registration for self employment is needed as I assumed classed different from property income?

    I do need to register for class 2 NI I know so will do that.

    Thanks so much - fantastic and helpful blog site!

    13 November 2014

  342. Admin

    The proper procedure is to register as self-employed, and as part of that, set up your Class 2 NI. When you register, make sure you give them your existing UTR, or they will set you up as a new person.

    Each year, you will still complete the same, single tax return, only now you will also have to fill in an extra section for self-employment, in a similar way to your rental income.

    14 November 2014

  343. Sara

    Hey could you give me ur advice I am currently working part time earning about £7999 a year I am looking to go self employed part time but also remain with my employer but I would like my employer not to find out is there anyway they would know I have registered self employed? Will my tax code change? As it is the same line of work I will be doing I don’t think they would like me doing this.
    Thank you

    14 November 2014

  344. Admin

    This is from the article:

    “Registering as self-employed in this way does not mean that the tax office will tell your employer about your sideline business, as your own tax affairs are confidential. Your PAYE tax code will not need to change, unless you want it to. See: Will my employer find out about my business?

    Did you have a specific question?

    14 November 2014

  345. Sara

    Thanks for the reply I did read that article but I know my employer won’t find out because I won’t be advertising, if I go over the the tax free thresh hold will the tax come off my employment or my self employment?
    Thanks

    14 November 2014

  346. Admin

    When you complete your tax return, you can choose how you want to pay the tax: as a bank payment in January, or through your wages (= through your PAYE code).

    15 November 2014

  347. L Smith

    Hi - Firstly, thanks for the page - it is useful. I just want to clarify my understanding.

    I am currently employed full time on a salary of £38,800.

    I am wanting to begin the process, slowly, of starting my own company providing training courses face to face. I am anticipating earning no more than £5,500 during the first 12 months and this will be before expenses.

    Am I correct in thinking that I need to:
    1) Fill in the NI exemption as the amount is below the limit;
    2) Register with the tax office due to tax return requirements; and
    3) Register with HMRC. (Is this separate to 2?)

    Thanks in advance.

    15 November 2014

  348. Admin

    That is correct, yes. HMRC (HM Revenue & Customs) is the formal name of the tax office. It used to be called the Inland Revenue.

    15 November 2014

  349. Emma

    Hello, great information. My query is I work part time 12 hours and pay tax PAYE. I am also registered with HMRC as self employed and fill self assessment forms, for the freelance design work I have done over the past few years. Sadly I have an ongoing health condition that has flared up in the past 4 months, so have not done any freelance work, I have continued to work in my other job. I hope to do more freelance work in the future but do not know when. Do I need to contact HMRC to update them, or just continue to fill in the self assessment forms. Thank you for all your information.

    17 November 2014

  350. Admin

    You should continue to fill in self assessment forms showing an ongoing self-employed business, unless you reach a point where you consider you have permanently stopped that work, or there has been a gap of say 12 months in which you have not worked. In that case, you should enter a date that your business ceased on the tax return. If you do that, HMRC you probably won’t send you any more tax returns. If you start work again, you can register again as a new business.

    18 November 2014

  351. Lubos

    Hello, I am self employed at the moment but taking on an extra paid job, my new employer is asking for my tax code, otherwise I’ll be issued emergency tax code, is this correct? Thank you.

    18 November 2014

  352. Admin

    Your employer should not be asking you for your tax code directly. They should be asking you for your P45 from your last job in the same tax year (which presumably you do not have), or, failing that, asking you to complete a P46 (or equivalent) declaration of your status.

    1. Without a P45 or a P46 declaration, your employer will deduct tax at 20%.

    2. If your P46 declaration states that this is your first and only job this tax year (which you are entitled to do), your employer will tax you using an “emergency tax code”, under which each pay day you are given credit for your unused personal allowance for the year so far.

    3. If your P46 declaration states that this is not your first job this tax year but currently your only job (which you are also entitled to do), your employer will tax you using a different “emergency tax code”, under which each pay day you are given credit for your personal allowance for that week or month.

    In all cases, there will be a balancing tax payment or refund when your tax return is submitted, such that the amount of tax you pay overall for the year will be the same.

    Under option 1, you will have some tax deducted each pay day, but the tax to pay at the end of the year will be much lower, or you might get a refund.

    Under option 2, you will probably not pay any tax each pay day, but you will probably have some tax to pay at the end of the year.

    Option 3 is somewhere in the middle, depending on your level of earnings.

    18 November 2014

  353. Luke

    Hi there, awesome Q&A here.

    I’m sure you can help, so I’m employed at a gym and also sell on eBay which I’m registered as self employed as it’s a business. In January I’ll be starting an additional job self employed as a massage therapist, do I need to do anything in regards to HMRC, or can I just add my earnings to my current self assessment/ tax returns that I do for my eBay business. Does HMRC care what you do for work or do they simply want to know my earnings in a tax year?

    Thanks so much

    19 November 2014

  354. Admin

    There is no need to notify HMRC that you have a new business if you are already registered as self-employed.

    On your next tax return, each business must be shown separately. You cannot just add your massage therapist figures to the eBay ones.

    20 November 2014

  355. Andrew

    Hi, I work part time, and earn £7,500 a year, and have a tax code. I also earn £600 a year from DJing once a month in a bar. They have asked me to supply a unique tax reference for when I invoice them every month. Does this mean I have to register as self employed? And would I be taxed on this?

    Cheers
    Andrew

    20 November 2014

  356. Admin

    Based on your low overall income, there is no requirement for you to register, but HMRC prefer that all businesses do so. This would also give you a tax reference number to give to your customer.

    There would not be any tax or national insurance to pay on income at that level, if that is your only taxable income.

    21 November 2014

  357. George

    Hi,

    My question is regarding student loan repayments. I am employed earning around £25k but am looking to become self employed as well, with a local phone repair service. I don’t anticipate making more than a small amount on this per year, around £2k.

    Regarding the student loan repayments - I’m paying a small amount, around £50 per month at the moment through PAYE, and nothing I’ve come across shows how payment would work now that I would also be self-employed.

    I’ve come across a tax calculator and put in all my details and it seems to indicate that I’ll end up paying more over the course of the year for my student loan. It shows that on top of my current £50 per month repayment through PAYE I will also be paying £57 through my self employment.

    If this is true, it would wipe out all my profit over the course of a financial year and would make my endeavour redundant.

    Do you have any advice on this at all? The gov.uk phone number has been less than useless.

    25 November 2014

  358. Admin

    I am assuming you have an Income Contingent Student Loan. This will be the case if you took out a student loan while on a course that began in September 1998 or later.

    In the tax year ended 5 April 2015, your student loan is repaid at the rate of 9% on all earnings over £16,910 per year.

    This works out at £60 per month through your job (assuming the threshold gets allocated there first), and £180 per year for your self employment, paid through your tax return.

    It therefore looks like your figures are incorrect.

    25 November 2014

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