Tax advice for extra income

m4ttya

Hi

I don't know if this is the right forum to post this but I found so much information on here previously it seemed an appropriate to start.

I am employed full time as a web designer for a retailer but I have had a couple of enquiries as to whether I can do some work on the side as well. Lets face it any chance to earn an extra income is always welcome and so I said yes. The trouble is, I want this to be legitimate tax wise rather than cash in hand as it may involve a monthly income and lead to further work.

What things do I need to consider when charging the client re: income tax, VAT etc. I know that I will have to declare the extra income to HMRC but are there forms to fill out? Do I need to provide proof? If yes in what form? Do I charge VAT to the client? Do I need a VAT number?

I'm very confused so anything you can think of that will help me will be much appreciated.

Matt

OrangeProse

Hi Matt

I was, until recently, in a similar position to you (I'm a copywriter) so here's what I can remember from memory. Sorry if some of this is fuzzy, hopefully some other bright spark will be along with more concrete info! Still, should give you an idea.

If you're already working full time, then I would assume that you're a sole trader, rather than a limited company. This means that you have to set aside a percentage of what you earn from the freelance work each month in order to pay your tax bill.

As a rule of thumb, set aside no less than 25% of EVERYTHING that you bill to this freelance client. You see, your tax-free allowance will be used up by your day job. Therefore, every penny that you earn freelance will be taxable.

As far as I can remember, VAT only applies if your taxable income exceeds a certain amount (I think it's £67,000) annually. So if you're pulling in less than that, you don't need to register for VAT. That means you can't charge for it either, by the way.

In terms of declaring your income, I can't remember what the actual rules are. But what I did was call my local tax office, tell them my situation, and they sent me a load of forms. Basically I self-certified my income for the period that I was working freelance (I had full time work at the time too, I had to declare it but as I was on PAYE it was effectively ignored by the tax office) and they sent me a bill at the end of the year. You'll need to keep all your invoices (which is why cash-in-hand is rarely a good idea), statements and remittances as proof of income. Incidentally, there are certain things that you can net off your tax bill, legitimate expenses that you would reasonably have incurred whilst doing the work. I seem to remember that I claimed back for some travel and a couple of computer programmes. Not sure if this is still do-able now though, so worth checking.

When you get your bill, you use the money that you've stashed away all year to pay it, and then you start again for another year. So don't spend that money! That plasma TV might look tempting but when the taxman starts breathing down your neck it can get pretty scary!

Sorry that some of this is a bit vague - hopefully someone else'll fill in the gaps, or correct me if any of my info is wrong or out of date.

Oh one other thing - bear in mind that if you have any kind of restrictions on your full time contract about working for anyone else whilst you are working for them, if you get caught, you are likely to get sacked. A lot of these restrictions include the period of time of your employment, not working hours, so claiming that you just work the evenings doesn't cut it!

HTH

m4ttya

That's excellent advice. Much appreciated.