Paying tax on 'extra-curricular' activities

MrQwest

I'm not too sure where to post this, so if I have posted this in the wrong place, then I do apologise. Feel free to move it elsewhere.

Right. I work my usual 9-5 doing some boring work. I pay my tax & NI like normal.

Now in my spare time, I love designing websites, logos etc. I've got to the point where I think I could earn out of my web-design & stuff... But i'd like to stay on the right side of the tax-man.

I'm not talking about earning thousands a year doing this, but an extra couple of hundred over the year could come in rather handy. I've been designing websites for about 8 years now, and have built up a fair few 'clients' (read: mates who want websites). it's just annoying that i've not actually received any form of payment.

First off, Can I start charging people for websites, produce invoices & claim the money?

Secondly, would i have to pay tax on this? Is there a limit that i can earn up to before paying tax? I remember somebody told me once you can earn up to £1000 before having to pay tax?

Lastly, if i was to do this, would i need to set myself up as a business? with me being the sole employee?

I don't mind paying tax, I'm just lazy and dont fancy making up 'books' to submit to the tax man every year, so i'd rather avoid the hassle.


Can anyone give me some advice? It would be greatly appreciated Thanks!

morgani

You do not necessarily need to set up a company as you can trade as yourself operating as another name. e.g. Mr Qwest - Web Design services.

The tax you pay is based on the profits you make from your web design and also included with your employment.

Each tax year you are allocated a personal allowance which is tax free which you can find out from your tax code. 522L would be £5220. If you have earned over this from employment then you will have used up your tax free allowance. there are then three more rates at different earnings. 10%, 22% and 40%. You would add your profit to you earnings from employment and then use these rates and bands to calculate the tax payable. You then take off what you have already paid from employment and you owe the difference.

For National insurance you would not pay class 4 until you reach ptofits above your personal allowance, above that it would be 8%.

Hope that quick explanation helps, but if you want more info just let me know.

MrQwest

Morgani, thanks for that. I think I understand. From what I gather, i'm allowed a personal allowance (which, funnily enough, is 522!) of £5220 before i'm taxed. Now this is covered by my normal 9-5.

So as it's a personal allowance, i'm not allowed to have 2x personal allowances? earning £5k on my 9-5 and £5k on my web design before paying tax?

So if i've used my personal allowance on my day job, i wont have any left on my web design stuff. So any money i earn through web-design would be taxed? Is that right?

I'm not looking to earn thousands through this... Just a couple of hundred a year or so...

olly300

MrQwest wrote: »

Morgani, thanks for that. I think I understand. From what I gather, i'm allowed a personal allowance (which, funnily enough, is 522!) of £5220 before i'm taxed. Now this is covered by my normal 9-5.

So as it's a personal allowance, i'm not allowed to have 2x personal allowances?
You can only have one personal allowance.

earning £5k on my 9-5 and £5k on my web design before paying tax?

So if i've used my personal allowance on my day job, i wont have any left on my web design stuff. So any money i earn through web-design would be taxed? Is that right?

Yes

I'm not looking to earn thousands through this... Just a couple of hundred a year or so...

You still have to pay tax.

If you do decide to take on a paying client make sure you inform Inland Revenue asap. And make sure the date you give is the date for that the first paying client not for the work you did free otherwise you will get into all sorts of bother.

NAR

MrQwest wrote: »

So if i've used my personal allowance on my day job, i wont have any left on my web design stuff. So any money i earn through web-design would be taxed? Is that right?

This is correct, tax and National insurance will be payable too (AFAIK) on any profitable income.

JohalaReewi

morgani wrote: »

You do not necessarily need to set up a company as you can trade as yourself operating as another name. e.g. Mr Qwest - Web Design services.

Although by doing this, you will be personally liable for any claims against you in respect of your work (like you didn't finish the job in time, or to specification, etc.). You can get professional indemity insurance to cover this but it isn't cheap if you are only making a few quid. You will have to judge the risk for each job you do and avoid those that could go pear shaped.

Basically you are planning to do something that a lot of people do, you are employed during the day, and part-time self employed. When you start self employment, contact HM Revenue & Customs on their self employed help line and ask about registering. Then keep records of income and expenditure. At the at the end of the tax year, make sure you get a tax return to fill in and complete both the 'employed' and 'Self employed' sheets. As long as your self employed income is small, you just need to fill in a couple of boxes on the tax return (and not submit accounts). To keep things simple, align your business accounting year with the tax year (6 april to 5 april). Don't forget expenses include travel, heat and light, use of home as an office, depreciation of business equipment (computer, car, desk, etc.)

http://www.hmrc.gov.uk/selfemployed/
http://www.hmrc.gov.uk/helplines/newly-self-employed.htm

On the other hand, perhaps your 'clients' could pay you in kind (like drinks, or tickets to football matches, concerts, etc.).

Timmne

JohalaReewi wrote: »

On the other hand, perhaps your 'clients' could pay you in kind (like drinks, or tickets to football matches, concerts, etc.).

Although clearly tongue-in-cheek, this is illegal (Called "Bartering")! Don't use this as your reason to HMRC for not ever making profits...

Being an incorporated company doesn't mean there's limited liability, despite the "limited" thing. You should have PI insurance whatever the weather - being a web designer your premium shouldn't be much but it is totally necessary. If you're a director of a Ltd company and you've clearly been negligent, you'll get done and without insurance, this could cause big issues.

If you're only going to make a few hundred a year for god's sake don't incorporate - the costs and admin involved in this are far too high. You'll need to appoint an accountant to give you the proper advice which will cost you. If you stay as a sole trader you will keep any of this fuss down to a minumum. Tax efficient decisions are pretty pointless when we're talking hundreds - if you start making thousands then get an accountant and some proper advice on dividends etc.

For advice on how to register as self employed (it isn't hard at all) check out the "Maximising income" thread on the debt free wannabee board. That thread's all about mystery shopping but the first couple of posts show you how to register as self employed.

Last of all, there are a lot of people on this forum (not meaning anyone on this thread by the way!) that mean well but don't give proper advice - just the stuff that Dave said down the pub, that becomes a myth! Please always do your own research on this sort of thing as free information cannot be trusted all the time.

morgani

As Timne said, you definately do not want to incorporate a company as there would be no or little benefit when your profita are to be that low.