Setting up whilst in employment

WSforever

I am thinking of starting a small home-based consultancy business which I am hoping will ultimately grow to become my sole source of income in time to come, however, obviously until such growth is realised I don't want to leave my existing job/career.

What are the tricks/pitfalls to starting up a business whilst remaining in employment?

Whilst there wouldn't be a conflict of interest with my current employer, I am reluctant to tell the company I work for but are there any tax implications that I would HAVE to make the payroll dept aware of?
Any advice - greatly appreciated.

Mudd14

By working and being self employed it is unlikely that your employer will know from tax codes. Your employer will recieve a tax code notification if HMRC needs to make an adjustment but they do not provide reasons to the employer only to the employee. Chances are the only way your employer will know is through someone telling them. I would however advise you tell them if you have a conflict of interest of clause in your contract rather then not telling them and be in breach of contract.

I am looking to do the same and the only things I have thought of are;
Not being available by phone in working hours
Working from home may not look professional for your postal address
Balancing the workload

I would be interested to hear from you privately as we are setting on the same journey and may be able to help each other with advice along the way!

PlutoinCapricorn

I have done exactly this in the past: in some ways you get the best of both worlds. The employment was not full time, which made things easier.

Earnings from self employment are taxed separately so the employer and payroll are not necessarily involved. If you did need to pay a small amount of tax, you could elect to have this collected via your PAYE, which would indeed mean a change of tax code and the employer would need to deduct the extra tax. You could pay the tax yourself via BACS transfer so the employer would not be involved at all.

You do need to check your contract of employment: not only is there conflict of interest to consider, but also possible use of the employer's facilities for the other work and being too tired and distracted to concentrate on the main job.

If you are are a home based consultant operating as a sole trader, there is nothing wrong with using your home address as the business address. It might be seen as unprofessional if you were running an employment agency, but especially in the startup years it makes sense, and running costs are tax deductible.

mizzbiz

I have just started doing this too whilst working in a temporary role. I part-started in October and now have a couple of regular contracts so am managing to fit the work in on evenings/weekends/holidays and flexi days. I'm finding it manageable and thrilling that I am taking control of my life in these rubbish times where my continued employement is constantly under threat.

My current temp contract ends in August, by which time I hope to be fully employed by my business. If not, I plan on part time working combined with business until it can stand on it's own two feet.

As we are in the process of buying a house, me quitting FT employment was unthinkable as we wouldn't get a new mortgage. Once that's through, I'm free.

It is hard work and takes organisation and dedication. I have been trying to do some of my website in my lunch half hour, twttering and emailing on my commute and breaks ( a Blackberry is essential!!) and actually doing the work and business admin in the weekends/eves etc. But most of all, it makes you feel free and when you get that sinking feeling because it's Monday morning and you have to drag yourself into work, you remember what you're doing on the side and you get a little buzz that keeps you going with a secret smile because hopefully, you know that soon you will be totally independent.

Good luck with it, don't talk yourself out of it and enjoy the process *(and the hard work!)

PS: If you're a Sole Trader, register with HMRC and complete a self assessment for tax. NI is payable weekly unless you will be turning over a small amount. Once you register, you will get all the info you need from HMRC, but their website is a good source of info on taxation and NI too.

Rose_Crow

Hi everyone,

I'm currently at the very beginning stages of thinking about setting up a business. I've been with the company I work for for 4 years and have a very good boss however I have a nagging urge to work for myself. I'm thinking about setting up a building planning consultancy specialising in building extensions and conversions alongside my OH who also works in a similar field. Neither of us will give up full time employment, though I may do in countless years to come if the business picks up.

I too am reluctant to tell my boss about this, though it is a similar business, it won't be in direct competition with what my boss's company does. I've read through my contract and have found a bit about not undertaking any other work during my contacted hours, which is fair enough as I plan to work for myself part time in the evenings. There was also a part detailing not undertaking any work or activity which may affect my ability to do my job - again fair enough, I'm not taking up pot-holing or working into the wee small hours.

Like WS I wondered whether the boss any find out due to tax, though it sounds pretty safe to me. Like a say, I'm a complete novice, can I ask a few questions?

Don't you pay tax on your income once a year at tax return time? I'm puzzled by those talking about paying it through PAYE?
How do you work out how much tax you pay, when you already have a full time job and pay basic rate tax?
Mizzbiz - you mentioned NI - do you know what the cut off point for the low earner is, as like I say, we're going to be doing this for fun at first, so don't expect to turn over much.

Regarding me and my OH, I feel a Partnership would be the best option for us, since we'll both be doing an equal amount of the work, then just share the takings out between us and pay our own tax. Should we just register as self employed ASAP even if we not going to start work immediately. That way we'll get information sent to us about tax and NI from HMRC.

Sorry about all the questions, I've been reading a book on the subject but it might make more sense to have it clarified.

We'll have to start a MSE group :rotfl:

chalkie99

@ grn.w.nv

Couple of thoughts off the top of my head -

re. terms of your existing employment and not undertaking other work during your contracted hours. You might well want to work in the evenings and weekends but, in reality, your clients are bound to want to contact you during the day as well. How can you deal with that?

re.tax issues - your tax rate will depend on what you are already earning- will this tip you over into the higher rate bracket or are you, perhaps, already in that?

Will probably think of more when the kettle has boiled

Rose_Crow

Thanks for that chalkie. Some things to think about, though I will try to explain to clients that I work during the day, I'm sure they will try to respect that as most clients would most probably work themselves during the day, so evenings are easier for them to phone us. I work from home already, so if anyone does call me during the day I can take the call without getting noticed (naughty I know), though I would of course keep it to an absolute minimum.

I'm nowhere near the limit of basic rate tax, so nothing to worry about that there. So would I just pay 20% tax on my self employed earnings - simple as that?

I've worked out the NI contributions, basically if we earn under £5075 a year we can apply for a Small Earnings Exception. If we go over that it's £2.40 a week. Again, this seems to be completely separate from my normal earnings. From what I can gather from the CF10 form you can estimate you income forecast for the year ahead. Though I'm not sure what happens if you unexpectedly go over that limit.

bingo_bango

grn.w.nv wrote: »

I'm nowhere near the limit of basic rate tax, so nothing to worry about that there. So would I just pay 20% tax on my self employed earnings - simple as that?

I've worked out the NI contributions, basically we earn under £5075 a year we can apply for a Small Earnings Exception. If we go over that it's £2.40 a week. Again, this seems to be completely separate from my normal earnings. From what I can gather from the CF10 form you can estimate you income forecast for the year ahead. Though I'm not sure what happens if you unexpectedly go over that limit.

How exactly did you arrive at that figure? From what you've written so far, you are working a 40 hour week (or similar). Are you now saying that you don't earn anywhere near £5075 for those hours?

Any earnings you declare to HMRC will be on top of your current salaries, not seen as a separate wage. That being the case, you are already well over the LEL, and probably close to if not over the UEL. You need to look at your figures again.

Rose_Crow

Bingo - Firstly that should have read 'basically IF we earn under £5075'.

I've copied a bit from that form:

Self-employed in your spare time
You have to pay Class 2 contributions if you are self-employed
in your spare time, even if you are also paying Class 1 earnings
related contributions as an employee or office holder. However,
you do not have to pay Class 2 contributions if you apply for
and are granted a Certificate of Small Earnings Exception.

If you are employed and self-employed
The law requires that you meet all National Insurance liabilities
as an employee in all of your employments and as a selfemployed
person.

If you work for an employer as well as being self-employed,
you may be allowed to delay paying some of your Class 2
and/or Class 4 contributions. This is called ‘deferment’. You
should only apply for deferment if your net self-employed
earnings are expected to be above the small earnings
exception level of £5,075.

If you expect your self-employed earnings to be less than
£5,075 deferment is not applicable and you may qualify for
Small Earnings Exception (SEE) and will need to apply. To find
out about deferring Class 2 and/or Class 4 contributions, please
contact Deferment Services on 0845 915 7141.


Now I read that as if you are employed and self employed, if the money you earn being self employed comes to under £5075 you may be exempt. It doesn't seem to mention your 'employment' part coming into it.

Pennywise

Ten years ago, I set up an "on the side" business hoping to grow it slowly alongside my full time job. It caused no end of problems and in the end I had to bite the bullet and give up the full time job. Luckily, the business grew quicker than I thought and I had some savings to tide me over until it could replace the lost wage. My problems were:-

1. Clients were put off if I was honest and told them I had a day job and I got low take up. If I didn't tell them and they became a client, they were miffed that I didn't answer the phone or emails during the day and couldn't have meetings in the day.

2. My employers found out what I was doing and were seriously miffed even though I wasn't in competition with them. I'd done all I could to keep it quiet, i.e. hiding under an anonymous limited company name, using a separate home and mobile telephone number, using a "virtual" office address for mail, etc., but they still found out. To this day, I don't know how - perhaps one of my potential clients knew one of my employers?

3. The stress nearly killed me. Working flat out all day and then having to work at night and weekends was no fun at all and I know that both my day job and business suffered as I wasn't giving either the required 100%.

Unless your day job is part time, or isn't hard work either physically or mentally, then you really need to think carefully about whether it will work.

I've known a lot of people who've tried this and most seem to last only a few months before they give up one or the other.

I think it's probably a better idea to test the water slightly for a month or two to see how easy you can attract customers and then if it seems to work, then give up work and concentrate on the business even if you can't replace the lost wage - it's amazing how long you can last on credit cards, loans, and cutting down to tide you over!

Savvy_Sue

grn.w.nv wrote: »

Now I read that as if you are employed and self employed, if the money you earn being self employed comes to under £5075 you may be exempt. It doesn't seem to mention your 'employment' part coming into it.

I think you are right: what wasn't clear was that you were only talking about your s/e income prediction at that point.