Tax on extra income

[cs02rm0]

I've got a salaried job on PAYE and I've been doing some extra bits and pieces that are starting to add up now. I'm getting paid from business accounts by cheque generally so I suspect there's no hiding from the taxman. It's irregular amounts at irregular times.

Question is, how should I declare this income? One of those "tax doesn't have to be taxing" self assessment forms at the end of the financial year? It's not really enough to be paying an accountant yet and I'd rather learn the nuts and bolts myself really anyway.

Thanks.

[Eric Mc]

What type of income is it - are you engaged in another employment (in which case those paying you should be deducting PAYE at source) or is it self-employment income?

If the latter you MUST -

notify the Revenue within three months of the commencement of the self-employment activity

complete a Self Assessment tax return declaring the self-employed income together with ALL your other income from all other sources (even if that other income is already taxed through PAYE or at source under some other tax deduction scheme).

[cs02rm0]

Self employed. There could be gaps of several months between pay packets though, do I just notify them that generally I might be picking up some work or do I have to renotify them?

I'll take a look at the self assessment tax returns then. Thanks.

[Geronimo]

Blimey, you're keen aren't you. If it's as ad-hoc as you make it seem then it's quite easy to dodge.

Edited by Geronimo on Monday 10th November 11:25

[soprano]

Geronimo said:

Blimey, you're keen aren't you. If it's as ad-hoc as you make it seem then it's quite easy to dodge.

Edited by Geronimo on Monday 10th November 11:25

Sure, just pass it on to those of us who are honest, we'll pick up the tab don't worry.

[cs02rm0]

Yeah, I'm just a bit wary that the amounts are becoming significant and I've had a few enquires that might make it more regular, plus being paid from business accounts is probably a lot more obvious than being paid cash?

[Eric Mc]

It doesn't matter if it is ad-hoc (whatever that really means). You are now receiving income through a "trade" and you must notify the Revenue within three months of commencement. Failure to do so may result in a £100 penalty.

If the net taxable self-employed income is going to be less than £4,825 in the current tax year, you will be let off the hook regarding the need to pay the Class 2 National Insurance contribution. However, you need to notify the Revenue first in order to receive this exemption.

Edited by Eric Mc on Monday 10th November 13:00

[Mars]

I would always put half of any earnings aside for taxation. You ought not have to pay quite that much but so many people "forget" to put aside and get faced with end-of-year bill from the IR causing them to have to loan money. I have 2 family members in this boat. I can hardly believe they can be that undisciplined.

[Mr Whippy]

soprano said:

Geronimo said:

Blimey, you're keen aren't you. If it's as ad-hoc as you make it seem then it's quite easy to dodge.

Edited by Geronimo on Monday 10th November 11:25

Sure, just pass it on to those of us who are honest, we'll pick up the tab don't worry.

Nice view there.

How about just not doing the jobs on the side and then not making money which will, undoubtedly, be spent, and taxed, at 17.5%, + more if it's fuel, ciggies, booze, etc... and then also helping prop up the economy.

Not supporting tax evasion of course, but the view that others have to pay more because someone doing a gardening job or something every 15th weekend for their neighbour and not declaring it is just mad!

Dave

[Eric Mc]

So you think the black economy has little or no effect on taxation levels?

[Mr Whippy]

Eric Mc said:

So you think the black economy has little or no effect on taxation levels?

Thats a bit racist.

Clearly it will have an effect, but the whole system is ridiculous anyway.

Ie, London congestion charge, only MADE money because of the fines. Ie, the behaviour that isn't desired actually made it run a profit! If everyone had paid then the system of taxation there, would have made us all WORSE off!

How many other taxes are inefficiently collected/enforced?

Flat rate the lot, and/or stick VAT up a fair bit more (as most money is ultimately spent, and that saved is 'realised' as an earning anyway and can be taxed there)...


I'm not saying tax evasion is good, but the general sentiment that it is 100% bad isn't really true either. By that logic we are allowing the government to be as wasteful as they want in tax collection, but we should still put up with it because it's 'tax'

The system shows it's weakness, even though we employ people to determine those evading tax, we can legally avoid it and save significant amounts, and every year the government and businesses spend billions making changes/scheme changes etc, to constantly try out-manoeuvre each other...

IF the system was even half good, people wouldn't be ABLE to evade tax. People evading/avoiding tax are doing the system a favour, showing up it's inherent stupid complexity and weaknesses, and hopefully getting us better taxation efficiency in the longer run!

Dave

[Eric Mc]

Unfortunately, disenchantment with the system of taxation currently in operation is not an allowable excuse that you can use to refrain from what you are legally obliged to do.

The OP asked what he needed to do to ensure he did the right thing. Having a rant about the iniquities of UK taxation is of no help to him.

[neil_bolton]

Eric Mc said:

It doesn't matter if it is ad-hoc (whatever that really means). You are now receiving income through a "trade" and you must notify the Revenue within three months of commencement. Failure to do so may result in a £100 penalty.

If the net taxable self-employed income is going to be less than £4,825 in the current tax year, you will be let off the hook regarding the need to pay the Class 2 National Insurance contribution. However, you need to notify the Revenue first in order to receive this exemption.

Edited by Eric Mc on Monday 10th November 13:00

Eric, do I read that right that additional earnings up to £4825 do not attract National Insurance BUT you do pay income tax on it?

At what rate (say for a normal earner below 40%) would I pay?

Say I earned £1k in addition to my salary? What is the likely percentage of income tax I would pay on that?

[JagLover]

neil_bolton said:

Eric, do I read that right that additional earnings up to £4825 do not attract National Insurance BUT you do pay income tax on it?

You don't pay class 2, but still have to pay class 4 NI

[Eric Mc]

neil_bolton said:

Eric Mc said:

It doesn't matter if it is ad-hoc (whatever that really means). You are now receiving income through a "trade" and you must notify the Revenue within three months of commencement. Failure to do so may result in a £100 penalty.

If the net taxable self-employed income is going to be less than £4,825 in the current tax year, you will be let off the hook regarding the need to pay the Class 2 National Insurance contribution. However, you need to notify the Revenue first in order to receive this exemption.

Edited by Eric Mc on Monday 10th November 13:00

Eric, do I read that right that additional earnings up to £4825 do not attract National Insurance BUT you do pay income tax on it?

At what rate (say for a normal earner below 40%) would I pay?

Say I earned £1k in addition to my salary? What is the likely percentage of income tax I would pay on that?

Correct. Class 2 NI is very low (£2.40 per week) but is only payable when the £4,825 threshold of SELF EMPLOYED INCOME is breached.

Self Employed individuals also pay Class 4 NI as part of their Self Assessment tax bill. Again, you will only pay Class 4 NI if the profits from your SELF EMPLOYED activity (activities) goes over a different threshold (£5,435 for 2008/09)/ Class 4 NI is charged at 8% on taxable profits between £5,435 to £40,040). Profits above that level are charged at an additional 1%.

NI works differently to tax. Tax is charged by amalgamating all your income (earned, invetstment and - up until recently, Capital Gains). The rate of tax you pay is based on the combined total of these amounts (Capital Gains Tax is now calculated differently).
NI looks at individual employments and self-employment. You only start paying NI when the various thresholds are breached in each individual job.

If you earn £1,000 net taxable income from self-employment, there should be no NI amounts due. However, the £1,000 is added to your overall income for tax purposes and you will pay either £200 (if you are a basic rate tax payer) or £400 (if you are a higher rate taxpayer) additional tax. Please note that a Self Assessment tax liability exceeding £500 will require you to make advance tax Payments on Account. For example, this means that a tax bill of £1,200 due in January would jump to £1,800 as you would be required to pay an additional £600 in advance for the next tax year.

[Mr Whippy]

Do you then put costs against the earnings, ie, if you mowed your neighbours lawn and charged them £5, would you put the cost of the lawnmower and petrol against the tax paid?

Ie, if you 'made' £200 a year from that, but costs were £150, you'd have a profit earnings of £50 due for tax?!

Still seems excessive. I bet it costs more for admin staff to administer the collection of it than they actually collect = everyone WORSE off for declaring it!

(again, not for or against, just saying that it's not always that people who avoid it are evil and costing us money, if we are pedantic about these secondary earnings... ie, helping neighbour do lawn)

Dave

Edited by Mr Whippy on Monday 10th November 16:28

[Graham E]

Mr Whippy said:

Eric Mc said:

So you think the black economy has little or no effect on taxation levels?

Thats a bit racist.

Obviously so, but you can understand it - not only do we have the "black market" going on, where you can buy guns, drugs, and other illicit goods, but now these so called "Black cabs" have come into the city centre, and taken ALL the hail-and-ride taxi trade.

Send them all back, I say



<note to daily mail readers, this is called sarcasm. calm down.

[Eric Mc]

Mr Whippy said:

Do you then put costs against the earnings, ie, if you mowed your neighbours lawn and charged them £5, would you put the cost of the lawnmower and petrol against the tax paid?

Ie, if you 'made' £200 a year from that, but costs were £150, you'd have a profit earnings of £50 due for tax?!

Still seems excessive. I bet it costs more for admin staff to administer the collection of it than they actually collect = everyone WORSE off for declaring it!

(again, not for or against, just saying that it's not always that people who avoid it are evil and costing us money, if we are pedantic about these secondary earnings... ie, helping neighbour do lawn)

Dave

Edited by Mr Whippy on Monday 10th November 16:28

In essence, yes.

So, in reality, if you really did the sums you would find that this type of "helping out the neighbours" doesn't generate any taxable income in reality. And the Revenue recognise this and would not expect anyone individuals to have to return it.
That's why no one would ever be taxed on a normal car boot sale pr jumble sale type situation. The assumption would be that the seller is really losing money on the sale, not making any.

They draw the line when people are carrying out an activity with a view to generating a profit. That is their definition of "trading" and they want people to pay the correct tax on such profits.

[Mr Whippy]

Eric Mc said:

Mr Whippy said:

Do you then put costs against the earnings, ie, if you mowed your neighbours lawn and charged them £5, would you put the cost of the lawnmower and petrol against the tax paid?

Ie, if you 'made' £200 a year from that, but costs were £150, you'd have a profit earnings of £50 due for tax?!

Still seems excessive. I bet it costs more for admin staff to administer the collection of it than they actually collect = everyone WORSE off for declaring it!

(again, not for or against, just saying that it's not always that people who avoid it are evil and costing us money, if we are pedantic about these secondary earnings... ie, helping neighbour do lawn)

Dave

Edited by Mr Whippy on Monday 10th November 16:28

In essence, yes.

So, in reality, if you really did the sums you would find that this type of "helping out the neighbours" doesn't generate any taxable income in reality. And the Revenue recognise this and would not expect anyone individuals to have to return it.
That's why no one would ever be taxed on a normal car boot sale pr jumble sale type situation. The assumption would be that the seller is really losing money on the sale, not making any.

They draw the line when people are carrying out an activity with a view to generating a profit. That is their definition of "trading" and they want people to pay the correct tax on such profits.

Ah ok, that makes more sense to me now. Thanks.

So I can make money, but if I'm not intending to make any profit then it's kinda ok. I feel better now for accepting £5 for trimming the neighbours hedge while I was out with the trimmers

Dave

[Eric Mc]

As you say, not worth the effort for such trifling a mounts.

However, being a regular at car boot sales and deliberately buying and selling stock with a view to selling at a profit IS a trade and the Revenue would require you to notify them.