Can somebody please explain this better

indierocker85

Hi

I currently am in a PAYE job paying around £8000pa (I'm part time)

Yet I am wanting to start my own website business so I am looking into registering self employed. The website will earn its income from affiliate revenue. It is unlikely we will reach £5075 in the first year, so will probably apply for Class 2 exemption. I Understand that my GROSS salary and net profit from self employment is added together and then a 20% deduction for tax is made, they then take into account tax paid on my salary and deduct that from the amount owing. But, I work this out that any pay left after tax from my main job is essentially taxed twice. Meaning if I earn over my tax threshold in my job, I am worse off?

Also, is it simply a case of I trade for a year then fill out a self assesment and pay any class 4 and tax due? Some people are telling me I have to pay in advance. ARRRRRRRRRGHHHHHHHH

No wonder I have been putting it off for so long

Thanks in advance

Gertie_Walker

No, you dont pay tax twice on any of your income.
Your pay from your main job is £8000, which means that you pay 20% tax on everything you earn over £6475 a year. Therefore, your profits will be taxed at 20%, as well as the excess of your pay over £6475. You are not paying tax twice on your PAYE income.

indierocker85

Yeah thats what I meant though. If I earn £8000 the taxable amount is £1465 (I have a £6535 tax code). So essentially I pay £293 tax on that. Then the excess is £1172, which is then taxed again along with my self employment profit. Meaning if I earn nothing in self employment that year. I pay an extra £200+ on tax from main job, which I would never have paid

indierocker85

What about tax, when is the amount owed paid? Do I simply pay it at the end of the year? Or is it paid in advance as a site suggested, as it is nearly impossible to estimate what it will earn, as we haven't even begun proper marketing yet

BoGoF

Your tax calculation would be

Employed Income - £8000
Self Employed (say) - £2000

Total £10,000 minus personal allowance £6535 = £3465 @ 20% = £693, minus tax paid via PAYE £293 leaves £400. (basically your self employed profit at 20% will be your bill all being equal with your PAYE)

I have no idea why you want to add this 'excess' if £1172 into the mix

Gertie_Walker

You pay the tax on your profits in two installments after the end of the tax year, once your profit for the year is known and once your earnings are known.

BoGoF

Gertie_Walker wrote: »

You pay the tax on your profits in two installments after the end of the tax year, once your profit for the year is known and once your earnings are known.

That is incorrect - if the person starts self employment now, their first tax return will be 2010-11, and the tax would be payable in full on 31 January 2012. If the tax was more than £1000 then two further payments would be required towards the 2011-12 liability - one also on 31 January 2012 and the other 31 July 2012.

indierocker85

Too confusing!!!!!!!!!!!!!!!!!!!!!!!

BoGoF

Why not get yourself on an HMRC course for the newly self-employed

indierocker85

OK

I *think* I now understand it. Gross salary + net profit from employment - tax allowance = Taxable figure - 20% = X - Tax paid at PAYE = Tax due