Web-based Extra Income -Tax?

whiskers

Hi I have a full time paid job, however I was thinking about starting an internet business in a totally different field. I would long term hopefully obtain revenue from the website..

1) Would I have to set up a separate sole trader company, and trade the website under that name.


2) As i would probably earn nothing or very little for the year, only expense of set up etc, do I still have to inform tax office?

3) How would this affect my current tax paid and tax code with employer who I intend to stay with. This would just be supplementary income ideally would not want my employer finding out.

2)plead ignorant and not inform tax office

many thanks if you can help!

HelenDaveKids

Can offer no help but would it be worth ringing your tax office and asking? Not sure I'd personally risk not paying tax but then Im generally very unlucky!

nakmeister

Firstly, this is intended as a rough guide and no substitute for professional advice etc. etc.

You don't need to set up as a company, you can register as a sole trader with HMRC. This requires only a couple of easy forms and a few minutes of your time. You can set up as a company, but that requires a lot more forms and time/money, as well as annual accounts, return and company tax computation on top of your personal tax return. There are reasons why you might want to - it can be beneficial depending on your profits - but it is often easiest to start out as a sole trader.

Yes you do have to tell the tax office, if you are starting as a sole trader you just fill in a form CWF1 (really easy). You can get £100 fine if you don't do this within 3 months of starting. Plus they'll catch up with you eventually so if you don't tell them, you might find yourself having a big tax bill with lots of interest and penalties in a few years time otherwise.

Your sole trade business shouldn't affect your tax code at all so there's no tax reasons why your employer has to know. You will continue to pay the same tax as you did before, and you will just pay any extra you owe via your tax return (you may not have done tax returns before, but once you register as self employed HMRC will start requesting you do one).

If you make a profit, you'll pay tax at 20%/40%/45% depending on what tax band you are in. You will also pay Class 4 National Insurance at 9%, though the first 7-8k you won't pay any. Oh and Class 2, at a flat rate of £2.70 per week if you earning more than 7-8k

It is worth pointing out that your can claim expenses as well, to set against your income. You can in some circumstances if you work at home claim a proportion of household bills for example.

And now for a bit of good news. If you initially make a loss, as long as you are working at least 12 hours a week on your self-employed business, and doing it with a view to eventually making a profit, you can set off losses against the tax you've paid on your employment income. So you could end up paying less tax, not more!

And finally, if you do ring the tax office, the chances are you will speak to a glorified call centre operative. They won't know much about tax, even if they pretend they do! You are probably better off finding a friendly local accountant - many will offer a free 1 hour consultation. If you do feel the need to ring the Revenue, try and speak to a Tax Inspector if you want to get a decent answer to any questions!