Paying tax on second income
Discussion
Afternoon all.
I'm a teacher so earning a PAYE salary, and have been offered some part time and occasional work as a music tutor during weekends and holidays. The guy offering the work is straight as a die and wants everything invoicing properly which leads to my question - what do I need to do and how do I accurately declare any monies earned? Is an invoice just a piece of paper acknowledging receipt of wages? Who do I tell about it?
Hope you're all having a nice bank holiday.
I'm a teacher so earning a PAYE salary, and have been offered some part time and occasional work as a music tutor during weekends and holidays. The guy offering the work is straight as a die and wants everything invoicing properly which leads to my question - what do I need to do and how do I accurately declare any monies earned? Is an invoice just a piece of paper acknowledging receipt of wages? Who do I tell about it?
Hope you're all having a nice bank holiday.
It might have changed, but as far as I know you should register with HMRC as self employed, and you'll need to pay a small amount each month in NI contributions.
Other than that, draw up a simple invoice for each piece of work you do, keep records of everything, it doesn't need to be complicated, a simple spreadsheet will do it, and make a note of any mileage you cover in conjunction with this work, as well as any other expenses (keep receipts if at all possible).
You can nett off your expenses and mileage against your income, which will help with regards tax.
Other than that, draw up a simple invoice for each piece of work you do, keep records of everything, it doesn't need to be complicated, a simple spreadsheet will do it, and make a note of any mileage you cover in conjunction with this work, as well as any other expenses (keep receipts if at all possible).
You can nett off your expenses and mileage against your income, which will help with regards tax.
Super Slo Mo said:
It might have changed, but as far as I know you should register with HMRC as self employed, and you'll need to pay a small amount each month in NI contributions.
Extra NI is only going to be payable if his self employed earnings are enough to fall into the Class 4 band. OP won't need to pay class 2 NIpopegregory said:
Thanks all. Think I'll ring them on that number provided and see what they say. Does anyone know if it affects my PAYE status or are the two seperate?
It has no effect at all on your PAYE status. You'll pay tax and NI as per normal.At the end of the year you'll get a self assessment form to fill in. On that form you need to put in ALL your earnings. You'll also put in the tax that has been deducted. If you do it online you'll see the HMRC website calculate how much tax you need to pay.
Countdown said:
Super Slo Mo said:
It might have changed, but as far as I know you should register with HMRC as self employed, and you'll need to pay a small amount each month in NI contributions.
Extra NI is only going to be payable if his self employed earnings are enough to fall into the Class 4 band. OP won't need to pay class 2 NIThat was probably 10 years ago mind, it might have changed.
To be fair, I should probably look it up, but haven't the time this morning.
Technically, you will be setting up a small "trading" business providing tutoring. This is not an unusual situation for teachers (I have had a few such individuals as clients over the years).
In order to return the details of this income to HMRC and pay the correct Income Tax (and possibly NI as well) to HMRC you need to notify HMRC that you have started a small self employment activity. They like you to do this within three months of commencing your self employment activity.
I assume that up to now you will not have been completing and submitting Self Assessment tax returns. If you have completed Self Assessment tax returns in the past I would strongly advise that you use the existing Self Assessment tax reference you already have. What you don't want is HMRC having you down on their system with more than one Self Assessment reference. This can happen sometimes and can cause all sorts of problems. If this is the first time you will have had to complete a self assessment tax return, then this is obviously not an issue.
On the assumption you are new to self assessment, once you register with HMRC for self assessment, HMRC will allocate you a new self assessment tax reference. Sometime after 6 April 2016 they will send a letter to you which is a formal Notice to Complete a Tax return for tax year 2015/16. You have until 31 January 2017 to submit this tax return by internet filing. If you want to submit the return the old fashioned way i.e. on paper, the deadline is earlier i.e. 31 October 2016. Most people now submit on-line.
In order to submit on-line you will also need to apply for a Government Gateway filing reference and password. However, if you use an accountant, you won't need this because the accountant will file on your behalf using his own "Agent's" HMRC references.
Just to clarify, self employed income is liable to both Income Tax and national Insurance. The tax is charged, not on the full income billed to your customers but on the PROFITS generated by your trading activity. Profits are essentially your gross billings less legitimate business expenses and any additional allowances (such as Capital Allowances) allowed by HMRC.
These taxable profits are added to your overall income from other sources (such as salary, interest etc) and your overall tax, including any tax at higher rates, is calculated on your full income. This gives you your overall tax position for the whole of the tax year.
Any tax already paid, such as through PAYE or deducted on interest received is credited against the full liability and the remaining balance due is payable through the Self Assessment system.
NI is a bit different. Self Employed income is subject to two types of NI, Class 2 and Class 4 NI. Up to tax year 2014/15, Class 2 was a small amount collected monthly by direct debit or quarterly by direct payment from your bank. Class 2 NI was around £140 per annum.
If your annual self employed income is less than £5,965, there is no need to pay any Class 2 NI.
For tax years 2015/16 onwards, the old direct debit/direct collection of Class 2 is discontinued. Class 2 has not been abolished, it's just that the amount due will be collected as part of the normal self assessment payment.
Also due as part of the self assessment payment is Class 4 NI. This has always been collected this way and nothing changes on this score. Again, if the self employed profits are less than £5,965, no Class 4 NI is due.
Hope that helps.
In order to return the details of this income to HMRC and pay the correct Income Tax (and possibly NI as well) to HMRC you need to notify HMRC that you have started a small self employment activity. They like you to do this within three months of commencing your self employment activity.
I assume that up to now you will not have been completing and submitting Self Assessment tax returns. If you have completed Self Assessment tax returns in the past I would strongly advise that you use the existing Self Assessment tax reference you already have. What you don't want is HMRC having you down on their system with more than one Self Assessment reference. This can happen sometimes and can cause all sorts of problems. If this is the first time you will have had to complete a self assessment tax return, then this is obviously not an issue.
On the assumption you are new to self assessment, once you register with HMRC for self assessment, HMRC will allocate you a new self assessment tax reference. Sometime after 6 April 2016 they will send a letter to you which is a formal Notice to Complete a Tax return for tax year 2015/16. You have until 31 January 2017 to submit this tax return by internet filing. If you want to submit the return the old fashioned way i.e. on paper, the deadline is earlier i.e. 31 October 2016. Most people now submit on-line.
In order to submit on-line you will also need to apply for a Government Gateway filing reference and password. However, if you use an accountant, you won't need this because the accountant will file on your behalf using his own "Agent's" HMRC references.
Just to clarify, self employed income is liable to both Income Tax and national Insurance. The tax is charged, not on the full income billed to your customers but on the PROFITS generated by your trading activity. Profits are essentially your gross billings less legitimate business expenses and any additional allowances (such as Capital Allowances) allowed by HMRC.
These taxable profits are added to your overall income from other sources (such as salary, interest etc) and your overall tax, including any tax at higher rates, is calculated on your full income. This gives you your overall tax position for the whole of the tax year.
Any tax already paid, such as through PAYE or deducted on interest received is credited against the full liability and the remaining balance due is payable through the Self Assessment system.
NI is a bit different. Self Employed income is subject to two types of NI, Class 2 and Class 4 NI. Up to tax year 2014/15, Class 2 was a small amount collected monthly by direct debit or quarterly by direct payment from your bank. Class 2 NI was around £140 per annum.
If your annual self employed income is less than £5,965, there is no need to pay any Class 2 NI.
For tax years 2015/16 onwards, the old direct debit/direct collection of Class 2 is discontinued. Class 2 has not been abolished, it's just that the amount due will be collected as part of the normal self assessment payment.
Also due as part of the self assessment payment is Class 4 NI. This has always been collected this way and nothing changes on this score. Again, if the self employed profits are less than £5,965, no Class 4 NI is due.
Hope that helps.
It would be an allowable expense. However, the claim for tax relief on a drum kit would not be as a direct cost but through the Capital Allowance claim system.
One thing sole traders have to be a bit wary of is claiming expenses or Capital Allowances which have a dual nature i.e. assets which are used some of the time in the business and some of the time privately.
If you are a music teacher who actually teaches the drums, then there should be no problem claiming the relevant Capital Allowance on the purchase of the drum kit.
If the drum kit is NOT used as a teaching or performing asset, then no claim should be made.
If a bit of both, then a percentage split between business and private us should be made and the allowance claimed based on the business use element only.
The self employed musicians I've looked after tended to have two streams of "self employed business" income - performing and teaching.
One thing sole traders have to be a bit wary of is claiming expenses or Capital Allowances which have a dual nature i.e. assets which are used some of the time in the business and some of the time privately.
If you are a music teacher who actually teaches the drums, then there should be no problem claiming the relevant Capital Allowance on the purchase of the drum kit.
If the drum kit is NOT used as a teaching or performing asset, then no claim should be made.
If a bit of both, then a percentage split between business and private us should be made and the allowance claimed based on the business use element only.
The self employed musicians I've looked after tended to have two streams of "self employed business" income - performing and teaching.
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