Making a business official.......
Discussion
hi all,
i am a photographer, employed on paye and quite happy with it that way, company car, decent enough salary to pay the bills and most stuff we need..........
however...lets say 'hypotheticaly' i am planning this year to do a lot more private work out of hours, and in the large amount of time off i get. What i need to know is, at what point do i have to make it official, and what is the situation with tax and NI. i am sure i still have to pay the higher rate employed NI and not the Self employed stat amount? or is it both?
I know every penny earned must be documented and logged to the IR but is it taxable from the first penny at 22% or is there a limit, and what is the situation with ofsetting costs etc.
I will just be as a sole trader, doing a bit of work and hiring a studio when required.
Apologies for so many questions all dotted about, just wanted to try and get an idea where to start.
Thanks
i am a photographer, employed on paye and quite happy with it that way, company car, decent enough salary to pay the bills and most stuff we need..........
however...lets say 'hypotheticaly' i am planning this year to do a lot more private work out of hours, and in the large amount of time off i get. What i need to know is, at what point do i have to make it official, and what is the situation with tax and NI. i am sure i still have to pay the higher rate employed NI and not the Self employed stat amount? or is it both?
I know every penny earned must be documented and logged to the IR but is it taxable from the first penny at 22% or is there a limit, and what is the situation with ofsetting costs etc.
I will just be as a sole trader, doing a bit of work and hiring a studio when required.
Apologies for so many questions all dotted about, just wanted to try and get an idea where to start.
Thanks
Your earnings as a freelance photgrapher will be taxed under the Self Employed tax rules. The rate of tax you are liable for is arrived at by bringing together all your income from all sources. You will then know what your total Gross Income is for the year and then offset against that your personal tax allowances. When arriving at your taxable Self Employed earnings, youy are allowed deduct business related costs and Capital Allowances in respect of the equipment you use.
Whats left over is taxed at 10%, 22% and, if applicable , 40%.
Assuming that all your employed earnings are correctly taxed under the PAYE system, you will only be asked to pay the tax arising on your Self Employed earnings or any additional tax on interest received etc that might be due at the higher rates.
As a Self Employed individual, you are also expected to pay Class 2 NI and Class 4NI. Class 2 NI is paid either monthly or quaretrly. Class 4 is paid as part of the annual Self Assessment tax bill.
If you are already paying the maximum possible Class 1 NI as an employee, you can claim to be exempted from having to pay Clas2 on youir self employed earnings.
Also, if your self employed earning are less than the National Insurance lower earnings threshold, you will not need to pay any Class 2 NI either.
You have three months to notify the Revenue that you have commenced Self Employment.
Whats left over is taxed at 10%, 22% and, if applicable , 40%.
Assuming that all your employed earnings are correctly taxed under the PAYE system, you will only be asked to pay the tax arising on your Self Employed earnings or any additional tax on interest received etc that might be due at the higher rates.
As a Self Employed individual, you are also expected to pay Class 2 NI and Class 4NI. Class 2 NI is paid either monthly or quaretrly. Class 4 is paid as part of the annual Self Assessment tax bill.
If you are already paying the maximum possible Class 1 NI as an employee, you can claim to be exempted from having to pay Clas2 on youir self employed earnings.
Also, if your self employed earning are less than the National Insurance lower earnings threshold, you will not need to pay any Class 2 NI either.
You have three months to notify the Revenue that you have commenced Self Employment.
Ok...........deep breath and read again! haha)
Thanks a lot Eric, i knew you would be the man to explain whats what. So i have to notify the revenue, keep accurate records of all incoming and business related expenditure, and declare it on the self assesment form before end of jan. Is there a way i can work out the tax i would be due to pay? the 22% current amount on salary, only goes up to the 40% if total gross earnings including private work exceed 40k ish is it? less business expences?
think i may have grasped it, but please shoot me down if im wrong. Appreciate your help as ever.
Thanks a lot Eric, i knew you would be the man to explain whats what. So i have to notify the revenue, keep accurate records of all incoming and business related expenditure, and declare it on the self assesment form before end of jan. Is there a way i can work out the tax i would be due to pay? the 22% current amount on salary, only goes up to the 40% if total gross earnings including private work exceed 40k ish is it? less business expences?
think i may have grasped it, but please shoot me down if im wrong. Appreciate your help as ever.
OK - wait until after 5 April 2008 before starting.
That means you will commence in the tax year 2008/09 (6 April 2008 to 5 April 2009).
You will need to prepare a basic Income and Expenditure account for your self employment from the date of commencement to 5 April 2009 (or 31 March 2009 - the Revenue accept this as being the same as 5 April and many businesses prefer a proper calender month end to their financial year).
You then will need to complete the 2008/09 Self Assessment tax return.
However, the 2008/09 Self Assessment tax return does not need to be submitted until 31 October 2009 (if being filed on paper) or 31 January 2010 (if being filed electronically).
Any Self Assessment tax due in respect of 2008/09 will be payable on 31 January 2010.
That means you will commence in the tax year 2008/09 (6 April 2008 to 5 April 2009).
You will need to prepare a basic Income and Expenditure account for your self employment from the date of commencement to 5 April 2009 (or 31 March 2009 - the Revenue accept this as being the same as 5 April and many businesses prefer a proper calender month end to their financial year).
You then will need to complete the 2008/09 Self Assessment tax return.
However, the 2008/09 Self Assessment tax return does not need to be submitted until 31 October 2009 (if being filed on paper) or 31 January 2010 (if being filed electronically).
Any Self Assessment tax due in respect of 2008/09 will be payable on 31 January 2010.
Edited by Eric Mc on Thursday 6th March 18:15
Excellent, that clears up a lot mate, thank you again, i will have to get googling for income/expenditure templates etc.
One last thought, with regards to registering for VAT, it is the business that is reg not the individual correct? i am thinking if the total gross income to ME not the business Exceeds the threshold (hopefull, and quite unlikely this year) then does that run into vat registration territory?
Cheers
One last thought, with regards to registering for VAT, it is the business that is reg not the individual correct? i am thinking if the total gross income to ME not the business Exceeds the threshold (hopefull, and quite unlikely this year) then does that run into vat registration territory?
Cheers
leeb said:
Excellent, that clears up a lot mate, thank you again, i will have to get googling for income/expenditure templates etc.
One last thought, with regards to registering for VAT, it is the business that is reg not the individual correct? i am thinking if the total gross income to ME not the business Exceeds the threshold (hopefull, and quite unlikely this year) then does that run into vat registration territory?
Cheers
It is the INDIVIDUAL who registers for VAT NOT the business.One last thought, with regards to registering for VAT, it is the business that is reg not the individual correct? i am thinking if the total gross income to ME not the business Exceeds the threshold (hopefull, and quite unlikely this year) then does that run into vat registration territory?
Cheers
However, registration for VAT only becomes compulsory when TRADING income exceeds the Turnover threshold - currently £64,000. Therefore, you can ignore non-business income (such as your wages from employment , bank interest received etc).
Regarding tax thresholds and rates, they are indeed changing on 6 April 2008.
The 10% band is being abolished and the Basic Rate of tax is being reduced from 22% to 20%. The income bands are also being adjusted as are the personal tax allowances.
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