self employed as extra earnings???

Jacka87

I am a recent graduate and have now started my first proper job. I have however discovered an oppurtunity to run a small business that is seasonal as well as almost all work being carried out at weekends so would like to take this oppurtunity whilst remaining in my current job.

As far as I am aware I dont need to inform my employer as they will remian my main income source however i need to declare my self employed earnings o the HMRC, via a self cert.

My father and many of his friends run small businesses and have taken on jobs in the past to supplement there income and said that they got double taxed and basically didnt earn any extra money. Can someone please explain how my situation should work???

PlutoinCapricorn

You will need to be more specific if you want detailed replies, but here are some general points.

Is your job full time? If it is, you are right that it is the main source of income. Have you got a contract of employment, and if so what does it say about taking on additional work? What you do in your time away from your job is your own affair in theory, but there are issues that might affect your main job. Tiredness and lack of concentration, using the facilities for outside work in normal working hours and conflict of interest.

For example, if you are an office worker and get an evening job in a bar, there will be no conflict of interest and no using the facilities, but tiredness might be an issue. If you work for one advertising agency, and get some freelance work for another one, conflict of interest is an issue.

As for the tax, it depends how much you earn in your main job. As a rule, you will pay 20% income tax on your profit from self-employment. Depending on how much this profit is, you may need to pay Class 2 NI (£2.40 per week) and Class 4 NI levy of 8% on anything over approx. £5k profit.

Jacka87

My job is full time, and my salary is around 23k so I am in the 20% tax bracket.

There is no issues with the jobs clashing, my main job is a graduate engineer where as my self employed job involves weekend day work retailing a food product.

In terms of my self employed business, I expect to turn over 30k roughly, and profit around 10k of this. So as far as I am aware I should pay my normal tax at my job and declare earnings of 10k with my small business. That would result in me earning 33k so would remain in the 20% tax bracket. As a result I pay 2k tax on the 10k profit my business made and I continue with my PAYE tax at work which is also at 20%.

Is this corect? Also the NI bit and any allowances though is completly over my head???

PlutoinCapricorn

You have a good 'mix' of work here, there is definitely no conflict of interest. Assuming that you would register as a sole trader rather than have a limited company, then yes, you are still within the basic tax rate bracket, even with 10k extra coming in. So you would pay 20% income tax on your profit. There was someone on here who was already earning enough to pay 40% tax so decided that doing extra work as a freelancer just wasn't worth it.

As for National Insurance, the rules are that sole traders must pay Class 2 contributions, currently £2.40 per week, unless they claim exemption on the grounds of low earnings, currently under £5k or so. Your expected turnover means that you must pay Class 2 NI. In addition, you must pay a Class 4 levy of 8% on all profit over £5,200 or thereabouts. The figures change each year. So again, is it worth it? Only you can say.

It seems that you are buying and selling, so your outgoings will be high. You seem to be well aware that you are taxed on profit not income.

Jacka87

Right so as far as I am concerned the tax bit is sorted, I am not having any issues there but the NI bit I am still not clear.

The £2.40 per week, would that generally be every week of the year, so I would pay 52*2.40= £124.8. Or is it only on weeks worked as the business is seasonal and therefor I would only work around 20weeks max? On top of that I would pay 8% of whatever my profit is over £5200. So on my example of 10k profit, with curent rates;

10000-5200=£4800 so 8% of 4800 = £384
My total NI would be 384 + 124.8= £508.8

So in total if I run the small business and reach my year 1 target I would profit 10k but then pay £2000 tax and around £500 NI ontop of my tax & NI from work. This leaves me gaining £7500 over the course of the year. However i will have had the hassles of running the business.

Is this correct? If so then I suppose its then down to me to work out if its worth it? :eek:

sarah_elton

Important thing to note - you have to tell HMRC you've gone self-employed within three months of starting. You don't wait until the following April and ask for a tax return. Fixed £100 fine if you don't tell them in time.

I did some work on a self-employed basis while working full-time a couple of years ago (for about 2 years). For me, it was worth it. Depends how many hours you'll have to work for your £7.5k and if that's worth it to you.

One tip if you go ahead - make a note of what date you tell HMRC on the phone that you commenced trading, and if/when you stop in future, make a note of when you tell them you cease trading. On your tax return you have to write these dates down and it makes it simpler if everything matches up.

The NI is every week - not just weeks worked. They bill you quarterly for it.

You mentioned that you would be declaring earnings of £10k to HMRC. You will have to keep accounts, and on the self-assessment form you will need to write in total takings (turnover), costs, and deduct one from the other to get profit. If record-keeping isn't your strong point, you can get an accountant. Should only cost a couple of hundred quid a year for a sole trader if you keep all your paperwork for them to refer to (receipts, invoices etc).

I would also double check the full-time job contract. Some companies won't like you working a second job. Better to be safe than sorry. I let mine know just in case, but the two were entirely unrelated so they didn't mind.

Jacka87

Thanks for the posts, the 10k was just a predicted figure, I will be hoping that the turnover-expenses comes out with a profit of around 10k. I have lots of inside knowledge on the business so that should be a reasonable target and with the fact that I would only need to work 2 days a week for 4 months or so to earn my 7.5k after tax and I currently work 5days a week for about 18k after tax all year I think it probably is worth it for me as it will really boost my income and allow me to get on my feet at the moment.

Can I assume that if my profit was lets say 15k and that took me over the tax threshold for higher tax band would I only pay tax at the higher rate on the amount over the threshold.

So lets say threshold around 35k or whatever and I earn 40. I pay 20% tax on the 35k and higher rate tax on the 5k left? Is there anyhing else that causes problems with doing this?

Also I have heard that instead of taking all of the profit in terms of a wage it is possible to pay myself with dividends? Is this ok for a sole trader?

Pennywise

Jacka87 wrote: »

Also I have heard that instead of taking all of the profit in terms of a wage it is possible to pay myself with dividends? Is this ok for a sole trader?

Only limited companies can pay dividends. As a sole trader, you pay tax on the profits made, not what you draw out, so you can still have a hefty tax bill if you leave the profits in the business bank account or reinvest in stocks for future resale!

CLAPTON

The 40% tax threshold is £43,875 and yes you only pay tax at 40% on the amount over 43,875
note also that if you contribute to a pension in your main job then this is tax free so is effectively deducted from your gross income so you can earn a bit more before paying 40% tax.

PlutoinCapricorn

The advice given to people who already have a job and who want to work for themselves as a sideline is to start off as a sole trader and see how it goes. You can always become a limited company at a later date, it is much simpler to start small and personal and create the company once you reach a certain size, and perhaps want to employ other people on a regular basis.

However, having a limited company means that you are not liable for any debts, whereas a sole trader is. Your overheads seem very high, what happens if you buy stuff then can't sell it? If you were a freelance researcher or mystery shopper, this aspect would not be relevant, but you need to consider it.

Jacka87

Thanks all again,

Plutoincapricorn, I dont need to worry about buying stock etc that I can sell. I am basically looking at buying a small part of my dads business that he is only looking to sell as he is wanting to run the business comfortably, sort of a semi retirement concept. As a result I know the business very well & also have the ability to buy the stock through him so dont need to buy large quantities etc. the main issue I was worried about was the tax. I now understand the sole trader cant pay themselves dividends but will still defo be a sole trader as it is the most obvious choice for the time being.

I am pretty sure now that I want to buy one of his smaller chunks of the business I now have the choice of 3 sections and must decide which of those to buy.

Thanks for the replies again tho!