Extra earnings: Other income Vs self-employed

gregc

From the point of view of self-assessment tax returns: Is there any kind of guidance on when 'casual earnings' starts to become 'self-employed' earnings?

I have never been self-employed so have never previously looked at issues related to tax for it - does it matter where I declare this income and related expenditure? I'd rather avoid the complication, unless I either have to, or it advantages me in some way. I believe it is "Other taxable income" box VS going into self-employment pages (I believe as a sole-trader).


The situation I have:
Ad hoc payments on the side for attending an event in a professional capacity (same as my main employment). From an employment point of view, it is casual - no contract, commitment, or rights, I'm not an employee, no relationship with the organisation. Received as direct bank transfer from a company. I have separate main PAYE employment. We are talking £500-£1500 region over the year.

I'd also like to offset some expenses against these earnings. These are related to professional expenditure. They are spent on allowing myself to maintain and develop the skills required to provide my services (e.g. courses), but isn't absolutely necessary to being able to do the work on any individual day, like for example how mileage or specific equipment that I might use would be. Without these expenses/courses though, I may be less likely to gain the assignment. The expenses definitely don't have any dual or private/personal purpose, and is not capital expenditure. The courses exceed the earnings.



What's the best (or correct) way to do this? What's the difference between declaring as "other taxable income" and self-employment sole-trader? I can find more about allowable expenses for self-employment, but what are allowable expenses for casual earnings? (Same, or less)

Thanks for any advice!

TheCyclingProgrammer

The other income box is described as being for “casual earnings, commission or other freelance income”.

There’s no black and white rule that determines whether earnings might be casual or self employed trading income. The key factor is whether or not you are “trading” and for this you could apply the “badges of trade”

http://winchesterbookkeeping.co.uk/hobby-business-or-self-employed/

Ultimately it’s a matter of judgement. The amount you’re earning on the side would fall below the threshold for paying class 2 or 4 NIC which is the only practical difference between self employed income and casual earnings (which are taxed like any other income), apart from not having to fill out a self employment sheet on your tax return of course. So I wouldn’t worry about it too much.

If you start to get this fairly regularly and exceed the class 2 NIC threshold then I’d say you’re starting to look more like you’re self employed.

IIRC there is a box you can use to offset some expenses against your casual earnings but I’d be cautious about starting to claim things like training as these might be a pointer to you actively seeking and expecting more work, which IMO would be a pointer to trading. And not all training expenses may be allowable so make sure you’re familiar with the rules on training costs.

gregc

Thanks for the reply, which I am now finally getting back to!
I had already found that article. I still remained quite confused about it, but realise this is probably just where the judgement call comes in.

Regarding badges of trade... based on the last one "are paid for a service that you provide". Does that suggest therefore that if your extra earnings, no matter how casual they feel, are from providing the same service that is your main profession, you are by definition trading? Or is it more an accumulation of multiple factors to make a judgement call? (To go further in the direction of 'not trading', I haven't earned any more for some time, and don't have a future plan of doing so, and don't particularly tick any other boxes)

I see what you mean about training. The intention is that the training is to enhance my professional skills and knowledge, and to stay current in my existing job. I'd be doing them anyway, not related to finding any more work, but aren't deductible from salary as they aren't considered mandatory for the main employment. I do some extra work (seemingly casually) to help cover the costs, help out where it's needed, and I enjoy it (different to what I normally do). The courses are equally applicable to the casual earnings, by the fact that it's performing the same duty professionally as my main job. Is it the case that courses that apply to casual earnings could never be deductible, while also concluding that I'm not trading, or is that just a judgement call? Much as I can see how this would often be a conflict, I'm not certain it is here. I may be asked to do the work because I'm generally conscientious and keep up to date, but not because I did a specific course - and I didn't do them to gain the work. Its pretty grey even when I think hard about it.

From what I can work out on a rules point of view with courses, I think they're ok: they enhance what I already do rather than expanding what I can do.

dori2o

gregc wrote: »

From the point of view of self-assessment tax returns: Is there any kind of guidance on when 'casual earnings' starts to become 'self-employed' earnings?

I have never been self-employed so have never previously looked at issues related to tax for it - does it matter where I declare this income and related expenditure? I'd rather avoid the complication, unless I either have to, or it advantages me in some way. I believe it is "Other taxable income" box VS going into self-employment pages (I believe as a sole-trader).


The situation I have:
Ad hoc payments on the side for attending an event in a professional capacity (same as my main employment). From an employment point of view, it is casual - no contract, commitment, or rights, I'm not an employee, no relationship with the organisation. Received as direct bank transfer from a company. I have separate main PAYE employment. We are talking £500-£1500 region over the year.

I'd also like to offset some expenses against these earnings. These are related to professional expenditure. They are spent on allowing myself to maintain and develop the skills required to provide my services (e.g. courses), but isn't absolutely necessary to being able to do the work on any individual day, like for example how mileage or specific equipment that I might use would be. Without these expenses/courses though, I may be less likely to gain the assignment. The expenses definitely don't have any dual or private/personal purpose, and is not capital expenditure. The courses exceed the earnings.



What's the best (or correct) way to do this? What's the difference between declaring as "other taxable income" and self-employment sole-trader? I can find more about allowable expenses for self-employment, but what are allowable expenses for casual earnings? (Same, or less)

Thanks for any advice!

To answer your first question, Casual Earnings refers to income that is earned from infrequent or one off casual work where no PAYE is processed, including freelance that is one off or infrequent.

Regarding your expenses.

Expenses for training are a minefield when it comes to tax relief.

All expenses have to meet the wholly, exclusively and necessary tests.

You say that without the training you would still be able to do the work/job/role etc but may not be asked to do so. That to me, would suggest therefore that the training is not necessary.

The fact a business may not ask you to do the job, has nothing to do with the necessity of the training. If that role can be performed by other people within the same role without the skill/training that you are claiming for, then it's not necessary and not allowable.

Furthermore you state that the courses allow you to 'develop' your skills.

To claim an expense the training course must, as explained, be necessary in the performance of your duties, but it cannot put you in a position to provide those duties. Relief is not due on training that provides you with new skills or qualifications.

This would also means any expenses linked to the training, i.e. travel costs to attend the course incurred would also not be allowable.


Thats just my opinion.

gregc

Your opinion is appreciated. All of the info you stated regarding expenses being "wholly, exclusively, and necessary tests" - I recognise well and know quite clearly how that applies to my main employment (basically almost nothing is deductible training-wise apart from a couple of very specific things (been tested in court already)).

The question then is:
-Do all the exact same sentiments apply to income declared as Casual Earnings?

-The rules for self-employment are different though, right? It would have to be wholly and exclusively for 'the trade' rather than the employment. By the rules, my courses are not necessary for the employment (it is professionally required that I stay current, but apparently there are other means of achieving this!), but are exclusively for my trade.

-Do Casual Earnings take the rules of 'employment' rather than 'self-employed'? - This may be the key issue causing my misunderstanding.

-Have I made a mistake, and would have been better off registering as self-employed therefore, even though I believe it is justifiable as casual, in order to be able to tax-deduct more of my genuine expenses?

TheCyclingProgrammer

Normally the general test for business expenses (whether self employed or incorporated” is that it is “wholly and exclusively”. The “and necessary” part only applies to employee expenses as far as I can remember.

My advice hasn’t really changed since my first reply. If I were you I would declare the earnings as casual income. I’d probably consider claiming the training too so long as you’re willing to make a good case for it if you ever have an enquiry. At worst I think if the claim was denied you’d be looking at repaying the extra tax plus interest.

Ho_Hum

I'm a bit confused by the Information on the Tax return which of course I need to submit by tomorrow (31st Jan). I did a one off piece of work which amounted to a couple of days consultancy for which I was paid.

I'm planning to enter this as "Other UK Income" rather than "Self Employed Income" as I'm not really self employed. The guidance implies that if I don't deduct any expenses I can reduce the amount I was paid by £1000 and enter the reduced amount on the tax return. Have I got that right?

Dazed_and_confused

There are rules which prevent this in certain circumstances i.e. the trading income is connected to your employment.

But if that isn't relevant you are probably best off reading page TRG 8 in the guide to completing your return on gov.uk (google SA150 notes).

Ho_Hum

Thanks for the input and your help.

I've read the information and the associated links and it seems clear that there is indeed a £1000 allowance if no expenses are claimed. There are provisos regarding hidden earnings from employment but they don't apply to me so I've gone for it but explained what I've done in the notes. As I'm due a refund I'm expecting the return to get reviewed so will see what happens.

polymaff

Sounds to my like you are self-employed. Even HMRC says so:


"If you hire a freelancer, consultant or contractor it means that:

• they are self-employed or are part of other companies"

And, yes, if you qualify for the trading allowance you can, instead of having to keep note of and then claim your expenses, use the lesser of your gross trading income and £1,000.