Self employment and tax

[rachela500]

How do you pay tax if you do home jobs such as ironing, gardening, DIY etc.

A friend wants to try and earn some extra money but wants to do it all above board and he's not sure about paying tax and NI.

[Buenchico]

It can seem incredibly complicated but it's actually quite simple. Basically, just contact the local HMRC office and register as self-employed. Keep records of all transactions and expenses. Keep enough money to one side to be able to pay the tax. Wait for a tax return to arrive. Fill it in and post it. Wait for the bill to arrive. Swear, moan, complain, jump up & down, then pay it! (NI demands arrive periodically as well).

Chris

PS: For more detailed information, check all of the relevant links, here:
http://www.hmrc.gov.uk/selfemployed/

[rachela500]

Thank you.

Does it make a difference if you still have a full-time employed position?

[Buenchico]

The same general principles apply to someone who also has an employed position.

As far as tax is concerned, there's a space on the tax return where you simply fill in the details of the employment. Because all of the tax-free allowance will normally be taken up within the employed earnings, this means that every penny of the self-employed earnings will be taxed at 22% (assuming that the aggregate earnings don't go into the higher tax bracket).

The position with regard to National Insurance contributions is slightly annoying because, although National Insurance will have already been paid in respect of the employed position, it's still necessary to pay further National Insurance contributions for the additional self-employed work. (i.e. the NI bills will be exactly the same, in respect of the self-employment, whether or not the person also has an employed job).

Chris

[rachela500]

It doesn't seem as difficult as I thought it would be.

Thanks for your help.

[ruthann58]

not difficult at all if i can do it any one can .they have made the tax form that you fill in each year a lot easier now. the first year i got mine back three times because it wasnt right but phoned them up and they were really helpful . i explained i was just a housewife with a part time job and wanted to do a bit of work from home to boast the housekeeping that was ten years ago i still do both and find the tax form so much better now

[gammaray]

The down side is that in your second year you have to pay your tax up front, based on the previous years earnings. so in effect whatever your tax bill is at the end of the financial year, you double it. It's all payed in advance from then on. If you do a lot better in your second year than in your first, you make up the difference. if you do a lot worse, you get a rebate.

Your national insurance (Class 2 NICS) is a flat rate payment regardless of earnings. You can apply for small earnings exemption (SEE) if you don't take a lot of money, you can also apply to defer payment of your NICS to the end of the tax year if you feel you may be overpaying due to your paid employment. You need leaflet CA72 from the revenue (down load from the website) but I'd suggest taking to an accountant for that sort of thing.

Although it sounds like a lot of trouble you should open two separate bank accounts. One for your business earnings and the other as a tax account. each month take out 25% (revenue rule of thumb) of the months earnings and put it in your tax account. That way, when you come to fill in your form at the end of the year you don't have to wade through your personal account to work out what is business earnings and what is money from other sources like paid employment.