Tax on Winnings

EmilyG2010

Hi people

I am currently doing work for a company which pays $5000 per piece of work... but only if you submit the best piece. I haven't a clue about where this would stand wrt tax. The closest I can find on the HMRC webpage is tax on lottery winnings which is exempt.... but knowing the UK tax system I am sure to be liable to pay tax somehow. The work is related to what I'm trained in.

Does anybody know anything about this?
Of course I've not won anything yet so may be getting ahead of myself, but nice to know in advance.

Also thinking if I am to be taxed on this (probably at 40%) then is it more efficient to basically say this is my business (in addition to my full time job) and pay less tax this way? I have expenses I incur in this work such as travel photocopy etc - can these be offset?

Finally if I won something now does one not pay tax until January? I really find this system so complicated
Thank you

Caroline_a

This sounds very iffy to me. So, in theory you could be doing loads of work and never 'winning'. What sort of work is it?

EmilyG2010

It's research. The company's well established so I'm not concerned about it.

paulstar

This sounds like earned income to me, not lottery winnings.

You could declare it as "Other Earnings" if it's a smallish amount. You're taxed at your marginal income tax rate on the earnings less relevant expenses.

If it's consistent and substantial earnings HMRC might insist you're self-employed (in addition to being employed elsewhere) in which case you probably have to pay NICs as well as income tax.

If it's a lot of income, you could set up a limited company and probably pay less tax, but this is probably only worth doing if you're consistently going to be earning tens of thousands from this source over several years.

paulstar

EmilyG2010 wrote: »

Finally if I won something now does one not pay tax until January? I really find this system so complicated
Thank you

If you have earnings in 2012/13 you'd report those to HMRC via self assessment about this time next year. You'd then have to pay any tax owing by January 2014. So you're right with respect to January, but a year out!

Shah79

I would suggest you declare yourself self-employed and assess your tax later on. As you said, you'll be very heavily taxed if you accept the £5000 in the normal way.

Good luck and I hope you win!

paulstar

Shah79 wrote: »

I would suggest you declare yourself self-employed and assess your tax later on. As you said, you'll be very heavily taxed if you accept the £5000 in the normal way.

What? What do you mean when you say: 'you'll be very heavily taxed if you accept the £5000 in the normal way'?

ALIBOBSY

Hmm I have a simular issue. I am an aspiring writer and obviously if any items/novels are accepted for use its obviously income. I have been paid for a handful of online articles which will be declared.But for experience I am also entering writing competitions. So no pay unless you "win", but is it taxable earnings, or non taxable prize and what about ones where the prize in only a voucher?

Ali x

EmilyG2010

It's $5000 if that makes any difference. I assume you still pay tax on the £ equivalent.

Thanks for all your help, sounds like I could be needing an accountant for this though. Seems really really complicated.

Does being self employed make much of a difference? I thought I'd have to pay 40% whatever my employment status given that my earnings through my main job are in the higher rate tax bit

paulstar

EmilyG2010 wrote: »

It's $5000 if that makes any difference. I assume you still pay tax on the £ equivalent.

Thanks for all your help, sounds like I could be needing an accountant for this though. Seems really really complicated.

Does being self employed make much of a difference? I thought I'd have to pay 40% whatever my employment status given that my earnings through my main job are in the higher rate tax bit

No need for an accountant!

If this is a one-off $5000 less expenses I'd suggest you report it in the Self Assessment "Other Earnings" box - or just write to HMRC saying you've had one-off Other Earnings of £xxxx. Yes, you will pay tax at 40%. (But if you have, say, £10000 income taxable at 40% you could put £10000 into a Personal Pension and not pay any 40% tax - have a look at the Hargreaves Lansdown SIPP webpage).

If it's regular and you are Self Employed you'll pay tax at 40% AND you'll have to pay NICs - so reporting it as Other Earnings would be better. As I said above, if it's a regular income and tens of thousands a year you might want to set up a limited company.

When you decide which option seems best and then investigate that option you'll discover it's quite simple - or extremely simple if it's one-off Other Earnings.

chrismac1

Some bad advice here so far. For a kick-off there are probably at least a few hundred quid of valid expenses you can claim to reduce the taxable profit, so no need to pay 40% tax on the lot.

Anything received in the period 6 April 11 to 5 April 12 is in the 11/12 UK tax year, submission due by 31 jan 13 and tax due paid same date. Strictly you should have registered as self-assessment within 3 months of receipt, if you are late a penalty is very unlikely.

Finally, pretty much every higher rate taxpayer with mixed income sources will benefit from hiring an accountant. In this case, if whoever you hire cannot convince you in the work he or she does between now and 31 jan that they are worth the fee, hire someone else they are no good!