Paying tax on extra income

eastern

My husband and I both work and have good salaries, but all our spare income goes to our Debt Management Plan (which we've been advised we may now have to change to an IVA, because of the size of our debt), so I have just started to make jewellery to sell to bring in extra income.
As we both pay tax on our salaries anyway, I was wondering if anyone could advise:
a) How much I would need to earn in jewellery sales before I had to pay tax (we're in the UK)
and b) If I need to register it as a business regardless of whether I earn enough from it or not.

Any info would be greatly appreciated.

Elaine_Wilson

If you are making the jewellery with the intention of selling at a profit then you are running a business. All of your profits would be subject to tax.

You should register as self-employed once you are up and running.

eastern

Ok - many thanks for your info.

baconbuttieman

it's a higher rate isnt it

Boris_Allen

I don't know much about how self-assessment works (you fill in a tax return at the end of the financial year and pay any tax owed in one lump sum?) but that is what you'll need to do for being self-employed. Essentially whatever you earn minus operating costs will be taxable earnings and the amount you should end up paying overall in tax is whatever the rate should be on your total taxable earnings combined.

What happens in practice, at least if both jobs are PAYE, is your primary job gets taxed with the relevant code as if it were your only job (so whatever proportion of that would make up the tax free allowance at the end of the year wouldn't be taxed, the rest at 20% up to the next threshold etc). Then, because HMRC do not have sufficient resources/procedures/are too incompetent to properly work out your total income and tax it in this way, if you have another job, they apply BR tax code and take 20% off that without bothering to work out what you really earn. Chances are though that if your primary job earns you above the tax free threshold, but your second income on top of that doesn't pass the 40% threshold then overall you'll be taxed correctly.

As I said, I don't fully know how businesses work as far as tax deductions go, but you can expect profit from your jewellery sales to be taxed pretty harshly, simply because you have another income source on the go. It's not that second jobs are getting heavily taxed unfairly, it's simply that you don't get more than one tax free allowance just for having multiple income sources, and they only apply that allowance to the first job. So in a way, yes you do pay a higher rate, but only because if the allowance was split evenly so you didn't pay a higher rate on the second job, you'd pay more tax on the first to balance it out.

Hope that makes sense!

LittleVoice

baconbuttieman wrote: »

it's a higher rate isnt it

You said you earned a good salary. I have no idea what you mean by that.

If you mean that you already pay 40% or 50% tax on the top slice of your pay, then you will pay that higher rate on your PROFIT from your jewellery business.

If, in your PAYE income, you fall short of the higher rate band, then how much tax you pay on your self-employed jewellery business income will be at least 20% but may be higher on some of it if it takes you into the next tax band.