a couple of tax questions about my current situation

joev

Hi all!

I've posted on here once before quite a while ago, I got some good advice and am luckily in a better situation that I was. Slowly but surely in the right direction

I have two tax related questions

1. I am currently employed full time but am beginning to take on some extra work out of hours to get rid of my last loan and begin saving a bit / overpaying the mortgage. I work primarily in web developing and consultancy but also a bit in design - if it makes any difference?

I am taking on a project worth £8,000 and am wondering what I need to do tax wise. I may get some more of this type of work as the year progresses but was thinking I would register as self employed to declare these earnings and look to incorporate as a limited company if I feel like I want to do a lot more work.

Questions ;o)
How much of the 8k should I expect to keep? Do I get the same tax free allowance I do in my full time job again as self employed? Can I claim any costs like a laptop/travel etc. back against the payment? Is it worth getting an Accountant? Should I just make sure I keep some money in the bank for tax and wait until the self assessment deadline next year?

2. I am think of moving in with my girlfriend. If I do I would like to rent my house out. It's currently on a standard repayment mortgage with Alliance & Leicester / Santander. The mortgage is about £650. I would like to rent it for this amount, but I should probably prepare myself for a worst case scenario of £600. I was going to let it privately and not through an agent.

Would I have to pay tax on any of the money I take from the tenants? It would definitely not be profit? Would I have to keep documentation of payments and mortgage payments to prove this later?

I'd really appreciate any advice anyone can offer - I guess these are both things lot's of people will have been through before

Thanks!

Joe

chrismac1

1. You get the 6,475 - soon to be 7,475 allowance across both. So your marginal rate of tax on the self-employed income will be 20%. I am going to PM you some links on expenses you can claiim, and the benefits and drawbacks of setting up a limited company. If you are already employed the NI savings are less than if you are 100% self-employed.

2. You should declare the income but it sounds like you'll have losses, which you can carry forward to offset any future profits on this rental.

joev

thanks. helpful links i will have a read into wether or not to go Ltd.

I wasn't entirely sure what you meant about the allowance though. Do I get the allowance twice or once?

I already pay 40% tax on the last few grand of my normal wage. Does that mean I pay 40% on the whole 8k for the contract work? I was rather hoping not ;-)

runninglea

you will pay 40% of your profit off the income of 8k. You can take the necessary expenses off this 8k.

As for the rental income - if your mortgage is £650 / month this will include both capital and interest. Only the interest is allowable.

For example : Rent is £650 per month, mortgage is £600 per month, £400 interest , £200 capital only the £400 is allowable for tax purposes.

You would therefore be making £250 per month(650 - 400) which is taxable. You can take off any other expenses though eg management fees, repairs, insurance etc

joev

gutted! that really takes the motivation out of doing lots of extra work, eh?

I don't really have a great deal of expenses I could claim. I have travelled to and from various meetings setting up the contract, but this would only be a small amount, even if I had the receipts! I have a laptop I do the work on, but I bought that last year...

Has anyone got any ideas? Or is taking only 5 of the 8k home something I have to be prepared to take on the chin?

runninglea

seven for cash!!!!!!!!!!!!

joev

runninglea wrote: »

seven for cash!!!!!!!!!!!!

haha, yeh! I suppose I could ask that, I imagine it's just tricky for a business to account for 7k on their books.

chalkie99

One reply says:

So your marginal rate of tax on the self-employed income will be 20%

.

Then another says:

you will pay 40% of your profit off the income of 8k.

which demonstrates the problem of relying on a forum for advice and means you should probably check with an accountant or HMRC.

As far as I can see the rate of tax due on your self employed income would depend on your current salary, which I don't think you have stated.

The rate will depend on whether you currently already pay higher rate tax or if your extra income would tip you over the limit. But you have already used your personal allowance, you don't get it twice over.

chrismac1

Your marginal rate of tax is 40%. if this is still the case and you are just a few thousand over 43,875 - the combined total of your taxable employment pay and taxable profits for 10-11 - then you have various options to avoid paying 40% tax altogether. The one most people go for is to pay a contribution to a SIPP or other personal pension in order to increase the basic rate band up from 43,875 to a hundrd or so above the point where 40% tax would kick in.

If you go for this option, you might be interested to know that in the third year of a US presidency the stock market has risen 11 times out of 11 since 1965, the average rise on the FTSE All Share being 28% in capital terms. And it has gone on to rise 8 times out of 11 in the fourth year of the presidency term. So right now - in your case before 5 April 2011 for tax purposes - is an excellent opportunity to top up your pension via stockmarket based investments - if you can spare the cash, that is.

joev

it's all getting a bit confusing if i'm honest - is it worth paying someone to help out?

Just to be clear I earn 40k basic at my full time job. I was under the impression I was paying 40% tax on everything above 38k. but as you may have seen from this thread, i am no tax expert. given the specifc amounts of 40k + 8k does all the advice above still stand? sorry, i should have put my wage up in the first place

zygurat789

joev wrote: »

it's all getting a bit confusing if i'm honest - is it worth paying someone to help out?

Just to be clear I earn 40k basic at my full time job. I was under the impression I was paying 40% tax on everything above 38k. but as you may have seen from this thread, i am no tax expert. given the specifc amounts of 40k + 8k does all the advice above still stand? sorry, i should have put my wage up in the first place

It doesn't matter what your basic is or for that matter what your salary is. What matters is your TOTAL income from all sources including interest on savings. Then
Total income - tax free personal allowance (6475) = taxable income
Of which the FIRST 37400 is taxed at 20%.
The NEXT 112600 is taxed at 40%
Above that is taxed at 50%
Oh and BTW if your taxable income is over £100000 they will reduce your personal allowance