PAYE & tax on more than one business/trade

Patr100

Ok I am employed part time - but earn less in a year with that work than the current personal allowance. I have started (and notified tax office)self employment as a webdesigner. From the HMRC site the threshold for tax appears to be assessed on self employment earnings alone (ie separately from PAYE?) so I pay NI as applicable and tax when my self employment profit goes over the threshold, regardless of my PAYE earning. Is this correct?

Secondly, if i have more than one trade or business , say I also do some work as a self employed tutor, unconnected with my Webdesign work and this is considered a separate trade by the tax office, are these earnings assessed completely separately for tax ie do I have an additional personal allowance up to £5,225 for the second business (which I doubt) or are the earnings added to the other unconnnected business till they exceed in total the personal allowance of 5,225 for self employed earnings?

taxdoctor

Hi Patr,

I'm afraid to say this isn't the case! (if only!)

The Personal allowance covers all the earnings you have in a particular tax year. You only get one allowance and it goes against everything.

You do not receive an allowance for employed or self employed separately.

What effectively happens is that at the end of the tax year all your earnings get added together and the personal allowance gets taken off the total pay. You are then taxed on the difference.

If you have already paid some tax on you PAYE earnings then this will be taken into account and you will get credit for it. Thus leaving you with a tax bill for your self-employment work. If you are using up your PA on your PAYE earnings then any profit made on self employment will effectively be taxed at 20%.

On the same score it doesn't matter how many different "trades" you have, in effect they all get lumped together too and you pay tax on the total.

With regards to National insurance, if you earn over £4825 per year then you will be expected to pay £2.30 per week class 2 national insurance.

I hope that makes sense! Sorry to be the bearer of bad news!

fengirl_2

You only have one tax free allowance in any tax year.
As you have a job under PAYE the usual thing is for your tax free allowances to be included in your PAYE code number and for you to receive the benefit of the tax free allowance as you go through the year - this is better for your cash flow. At the end of the year, you self assess and show the income from both businesses on your self assessment. The tax thrown up by the SA will be the tax on the two businesses which you normally pay in two installments. If your PAYE earnings are less than your personal allowances, then the tax calculation automatically allocates the left over allowances against your business income - it doesnt matter which business as all your income is lumped together for tax purposes.
Class2 NIC is payable because you are self employed (unless your s/e income is low in which case you get an exemption). Class1 is payable on your employed earnings and is entirely separate. Class 1 comes above all other conts, so you would only get a reduction in your Class 4 on profits if you paid the max under class 1. Your income for NIC purposes is not lumped together in the same way as tax. If you had 2 PAYE jobs, for instance, you would have 2 NIC exemptions of 5225.

Patr100

Thanks. I thought that was going to be the case. It's just that I remember the tax guidelines for self employment specifically state the allowance was on self employed earnings, with no mention of other possible earnings such as PAYE. They seemed to treat them as separate entities assuming you have no other earnings but of course many of us are employed and self employed. In my opinion, What it should have said to be less ambiguous was that you are taxed on any self employed earnings - in addition to any other non self employed earnings up to your personal allowance - as well as paying relevant NI.

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