Additional income

pdvinuk

I have a regular job with an annual salary of £40k. I pay tax as normal through my employer etc.

I now have an additional income seperate from my day job earning approximately £1,500 per month.

What's my best option tax wise? Do I just tell HMRC, register a business, or go as self employed?

TheCyclingProgrammer

What is the source of the additional income?

As far as tax goes, you have up to 6 months from the end of the tax year to notify HMRC that you have additional income and they will either collect tax by adjusting your tax code (unlikely to be an option with that amount of additional income) or send you a notice to file a self-assessment.

However, if the income is from some kind of business activity or trade, then you should have really either registered as self-employed for national insurance purposes already or incorporated the business.

As far as tax planning goes, trading through a Ltd company gives you more flexibility - you will pay 20% corporation tax on your profits and can leave the net profits in the company until you need it or make pension contributions, potentially deferring any income tax that needs to be paid (e.g. if you left your permanent job you could then start drawing dividends from retained reserves up to the higher rate threshold).

There will of course be additional costs to this approach, notably accountancy fees and if you've been trading for a while you may have to deal with transfer of your existing trade/goodwill (which is an "asset") into your business. But any good accountant should be able to help with this. You'll also have to figure out how to deal with the income you've made prior to incorporating - you may still have to declare this as personal income on a tax return and treat future income as company income going forward. Not sure about that one.

pdvinuk

The additional income is from programming entertainment for another company which I do in my spare time.

Is self-assesemnt the way forward?

Thank you for replying.

TheCyclingProgrammer

pdvinuk wrote: »

The additional income is from programming entertainment for another company which I do in my spare time.

Is self-assesemnt the way forward?

Thank you for replying.

If you don't want the hassle of setting up a Ltd company and are happy to pay tax on your additional income at 40% then registering as self-employed is the simplest option. You'll also need to start paying Class 2 NIC as you're earning over the small-earnings exemption threshold.

But you are supposed to notify HMRC when you start trading so you can be registered for NI. They will probably sign you up for self-assessment at the same time although your first notice to file will not be issued until after April next year and it won't be due until Jan 2016.

You'll want to start putting tax aside each month - that way come Jan 2016 you'll have not only the tax to pay your 2014/15 tax bill, but also your first payment on account for 2015/16.

pdvinuk

So really I've got to set up a LTD company if I want to save on tax.

Looks like I need an accountant

somethingcorporate

Have an initial chat to an accountant, for £18k income I would suggest it is probably going to be worth it in the long-run.