Starting a business when still employed - tax

Irish_Pat

Hi guys,

I'm not sure if this has been brought up before so please accept apologies if so.

Basically this is my situation. I'm currently employed full-time earning 21k. I'm looking to start a business on the side to supplement my income.

The business will be providing contractors to customers on an as and when basis (example: 2 guys for 3 weeks) - The people I'll be contracting in will handle their own NI, Tax etc but I'd like to know where I stand on income for myself.

Do I need to create a company and pay myself a wage? I'm presuming that the sole trader route doesn't work in this instance?

The other thought I have is that I invoice the customer for the services of both myself and the contractors, but how would I go about declaring for this if In essence I'm paying the contractors out of my profits?

Any help would be greatly appreciated

Scott

Horace

You would need to register your self employment with the HMRC. You will pay Class 2 NI for your self employed business.

It is not necessary to register as a limited company, easier to start as a sole trader and see how things pan out before going down the limited company route (tax is more complicated too).

I would get some business advice from your local chamber or business link about the employment of staff because if you are expecting them to be self employed and handle their own NI etc and they only do work for you then you are their employer as viewed by the HMRC.

When you do your invoices to your clients - you would invoice them for the work carried out not by the specific contractor that carried out that work. You were employed by the client therefore you invoice the client. Your contractor invoices you for the work they have carried out on your behalf.

You would need to keep your accounts up to date, have a separate bank account for the business as well. No reason why you can't make drawings from that account - drawings could be your wages. You would not need to do PAYE as you will be paying Class 2 NI for self employment and Class 4 via your current employment.

When you do the self assessment tax return you need to take into account the earnings from your employment as well that way the HMRC can work out what tax you need to pay. Tax is paid on your profits when you are self employed.

Make sure that you have the correct insurance as well - you will need public liability and possibly professional indemnity, your contractors will also need their own insurance and should have this if they are self employed - they cannot rely on your insurance and you cannot rely on theirs.

accountingbod

It sounds like you are offering a service where you put people in need in touch with people with the right skills

If the subcontractors are handling all their own taxes etc... then in effect i am guessing that they will have to invoice your company? If this is the case, then simply put, you are billing the client for the services and then paying the costs of sale out of your company. If this is the case then any profit your business then makes would be taxed net of payments to the contractors and then any income you take would be subject to NI and income tax.

I don't see why a sole trader route wouldnt work with this? It just depends what works best with your business set-up reagarding certain tax rules etc which you would need to speak to an accountant about.

Whatever you decide, you need to consider at the heart of it, if your contractors are to be classed as just that or if they in fact fall in to the category of employees. You should find some info on this on the HMRC website.

CIS seems to ring a bell here also? I think you may need to look in to this if you do go down the route of paying contractors for their work eg. PAYE. This is specifically for sub-contract work so seems applicable if that situation arose.

My advice, look at the HMRC website and speak to an accountant.

Hope that helps a little bit.

C.Lightowler

Are you in the construction industry? If so then you might have to register for the construction industry scheme whereby you have to get paperwork from the contractors to prove they will pay their own tax and NI and that you can pay them gross. I would contact HMRC or a tax specialist to make sure