Taking on a 2nd Job

Nesty

I have a fulltime job (under PAYE), but one of ourcontractors asked me do I want some extra private work (under self-employedbasis).

I have always worked under PAYE system, so never worked self-employedbefore.

Though taking on this extra work will I get mega taxed? I want to make it worth while. I amnot sure how many hours just yet as when the work comes along.

Not sure the best way of doing this. Do some people set themselves up a company name?

nd85_2

I do this regularly for extra pocket money.

Though taking on this extra work will I get mega taxed?

That depends on the income tax bracket you're already in. I forget what the boundary is, but income under about 40k pa you pay 20%, and above it'll be 40%. If your PAYE salary is already above this boundary, then be prepared to pay 40% tax on your extra income. In reality it's actually about 42% factoring in National Insurance too. At the 20% bracket you'll also need to add 9% NI, so it's 29%.

That means if you're a basic rate tax payer and you earn £1000 through your private work, you'll owe ~£290 tax/NI and you keep £710. If you're a higher rate tax payer (40%) then you'll owe ~£420 tax and you keep £580.

I want to make it worth while.

That depends entirely on your current income tax status, and how much you value your spare time! I tend to set an hourly rate that I simply won't go below (£70) as I know that after tax it's really £40, and that seems like a decent reward for giving up my valuable after-office-hours time.

Not sure the best way of doing this. Do some people set themselves up a company name?

I'm no expert but broadly speaking there are three ways, of varying complexity.

a) Invoice as yourself and have the money paid directly to you. Register for self assessment with HMRC and complete your tax return online every year: enter in details from the P60 your employer gives you; enter how much extra income you made, and it tells you what you owe.

b) As above, but set yourself up as a "partnership". This is free. The only tangible benefit of this is being able to split the income between business partners. For example I'm a higher rate (40%) tax payer while my fiance is 20%. We both do freelance work together, so a partnership allows us to split the profit 50/50, therefore only paying the higher tax on half. Slightly more paperwork on the self assessment return because I have to fill out a partnership return too.

c) Register yourself as a limited company with you as a director. This is probably the most hassle and doesn't really yield any tangible benefit for you. Tax returns become more complex, you might incur accountancy fees, and you'll still be paying income tax when you withdraw profit from the company.

So I'd suggest just invoicing as yourself as a sole trader. Each time you get paid for private work put away 29% (or 42%) into a separate savings account so you can easily pay your tax bill at the end of the financial year.

CLAPTON

once you start self emplyment you need to register with HMRC

unless you can claim low earnings exemption you need to start paying class 2 NI contributions by DD (2.65 per week paid 3 monthly)

you are liable to tax at 20% , 40% or 50% and class 4 NI at 9% or 2% depending upon income