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Tax on second (freelance) job in addition to main (PAYE salaried) employment
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# 1
Mr Thrifty
Old 20-03-2011, 3:25 PM
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Default Tax on second (freelance) job in addition to main (PAYE salaried) employment

Hi guys, I have a full-time proper job paying around £50K per year. In addition to this, an opportunity has arisen for me to earn a little bit extra as a freelancer. We're talking small amounts here - absolute most it would be during a full year is about £2,500 extra.

Anyhow, I want to make sure I do things right with the tax man. Can anyone advise what I need to do? Do I have to register as self-employed and/or make any payments on account (I have read that self employed people make 2 payments on account throughout the year)? Do I need to do a tax return, and if so, how do I go about doing this? Do I need to start paying Class 2 NI contributions in addition to what I pay via my main employer?

Any advice would be really welcomed please. I plan to call HMRC tomorrow to find out more. I would contact an accountant for advice, but it doesn't seem worth it seeing as we're talking about such small sums of money on the second income. But I do want to make sure I do everything properly.

Thanks again.
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# 2
PlutoinCapricorn
Old 20-03-2011, 4:24 PM
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Default tax on freelance job

Is there any chance that you could not start the freelance work until after April 6th - without cheating! This would give you ample time to learn the basics of tax etc.

You do need to register as self employed with HMRC as soon as you start the work. Sole Trader is best: a limited company is overkill.
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# 3
Mr Thrifty
Old 20-03-2011, 4:27 PM
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Will I have to pay Class 2 NI contributions and the like? Will my main (PAYE) employer need to do anything too? Also, just how complex is it to do the whole tax return and 'payments on account' thing? It seems like a heck of a lot of work.
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# 4
PlutoinCapricorn
Old 20-03-2011, 4:30 PM
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Default tax on freelance job

You would need to self assess: by far the easiest way to do this is online. HMRC will send details when you register as self employed. The deadline for completing the form for tax year 2010/2011 is Jan 31st 2012. The deadline for 2011/2012 is Jan 31st 2013. Just put aside something for the tax as it will not be payable until you have submitted the return. You may have to pay tax at 40% as your PAYE income is high. The rates and bands changes all the time, and there may be surprises in Wednesday's budget!

You will not need to pay Class 2 National Insurance because of the low earnings: you will get a form to claim exemption.
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Mr Thrifty
Old 20-03-2011, 4:35 PM
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Great - this is very helpful... thank you.

Just to check, do you know roughly at what level of self-employed income I will need to start paying any extra NI (like Class 2 NI)? Will I need to pay Class 4 NI?

Also, does it change my PAYE tax code or anything like that? Will my employer (the one from which I obtain the vast bulk of my income) need to do anything additional or differently?
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# 6
PlutoinCapricorn
Old 20-03-2011, 4:45 PM
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Default tax on freelance job

Filing a tax return online is very easy. It is best not to leave it until the last possible minute though. You get taxed on your profit, so you need to think about allowable expenses.

If the tax you owe is under a certain amount, you can elect online to have it collected via your PAYE code, but this is not compulsory. You will be told how much you owe, and how to pay it.

The Class 2 and Class 4 levy only apply to profit of approx. £5,000 or over.

www.businesslink.gov.uk is a good place to find free information and advice, and you can get free workshops where you learn about completing tax returns and claiming legitimate expenses.
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Horace
Old 20-03-2011, 4:46 PM
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You will pay class 4 in your employed job and maybe (if you make a profit) class 4 and 2 on your self employed work. The HMRC will sort out your tax and when they send a self assessment you need to complete it with details from your P60 for your employed work.

www.hmrc.gov.uk - they are good, they run courses on how to fill in a self assessment form and what you can and cannot claim for.

If the freelance work you are doing is the same as what you are employed to do by your employer then you will need to ask permission from them to set up because there could be a conflict of interest.
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Mr Thrifty
Old 20-03-2011, 4:49 PM
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Sorry to ask you so many questions, but this really is so helpful.....

When you say 'profit', how exactly would this work? Basically I might earn say £1,076.00 in the year from my freelance income. Of this amount I will have invoiced and collected, £76.00 may be train tickets and general expenses. Would I have to tell the tax man I earnt £1,076 and £76 of this was expenses? Or do I just tell them my additional income was £1,000? If the former, how easy/difficult is it to do this on the tax return form? I don't intend to keep any 'books' other than a copy of my invoices and a very simple spreadsheet with invoice number, date and amount.
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# 9
PlutoinCapricorn
Old 20-03-2011, 5:09 PM
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Default tax on freelance job

You will need to fill in three fields in the self employment section on the tax return:

A total income from self employment; B total expenses; C = A-B total profit.

You will indeed need to keep records to back up these figures if HMRC ever ask for evidence. So keep receipts, bank statements, invoice copies etc.

I have a simple 3-sheet spreadsheet: income, expenses and my own tax return calculations with figures for inputting online when the time comes and an estimate of what tax I think they will ask for.
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Mr Thrifty
Old 20-03-2011, 5:32 PM
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Great!! This sounds a lot easier than I expected.

And my main (PAYE) employer won't need to do anything? Will my main employer be able to know how much I have earnt?

Thank you again!
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# 11
PlutoinCapricorn
Old 20-03-2011, 5:46 PM
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Default tax on freelance job

It is really good that you are thinking about all these points in advance. You have an advantage in that your freeelance income is not expected to be above various limits: not only will you be exempt from Class 2 and 4 NI, but you won't need to give details of income and expenses, just totals. As people self assess for many reasons and not just self employment, you will need to put Yes or No when asked if you have income from all possible taxable sources e.g. PAYE job, bank interest, capital gains, benefits, pensions, dividends etc. Just say No to any that don't apply.

As for your employer, there are no official ways for them to know about this work unless you tell them: if you are a sole trader, your address and details will not be available online (unless you advertise!) and HMRC will treat your tax separately without affecting your Tax Code if that is what you want. Look out for the box when you submit the return. However, there might be something in your contract of employment about extra work. You might be tired and distracted, or work for a competitor, or do the freelance work in their time using their facilities. Be careful about receiving emails and phone calls when at your main job.
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# 12
Mikeyorks
Old 20-03-2011, 9:02 PM
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Quote:
Originally Posted by Mr Thrifty View Post
We're talking small amounts here - absolute most it would be during a full year is about £2,500 extra.
Up to £2500 it may be possible to get it coded out - and simply pay it through PAYE via a restriction in your Coding? Saves both you and HMRC the hassle of SA .... if they agree.

Some basic detail here. It doesn't specifically include 'self employed' earnings ..... but it's clear HMRC will allow it where smallish amounts :-

http://www.hmrc.gov.uk/incometax/non-paye-income.htm
If you want to test the depth of the water .........don't use both feet !
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