second income whilst fully employed, Tax Query

[Rick_1138]

Hi folks,

I am fully employed as a QHSE manager earning under PAYE.

I have a hobby of painting miniature figures such as warhammer but many other brands too, recently i have been finalist in some national competitions and have had people inquiring about me completing commission work for them.

I have been hesitant to do this due to the tax implications of a second income, but TBH i am pretty ignorant of what is involved.

I had a google hunt the other night and given the sums i would be looking at, i think casual income would be the area i am looking at, however creating a ltd business for further work is another option.

My worry is how i account for my taxes\profit. Is it a case of my usual income is PAYE from my employer, and any painting work income i self assess to HMRC?

I just want to keep myself right and not get into any bother.

My work is okay with me doing this BTW.

any advice would be very welcome

[Eric Mc]

You are effectively planning to run a small business.

How much income do you think you will generate in a given year? Don't forget, in an enterprise like this you are taxed on your business "profit", not the income actually billed to your customer.

[RobinOakapple]

Good point from Eric re profit. You'll need to provide and heat a room in which to do it, might need a car for visiting clients too.

[Eric Mc]

Not to mention buying the actual figures, paints, glues etc.

And, to be honest mods, this topic is about running a sideline business so it's not REALLY Jobs and Employment. It was correct for the OP to ask the question in the Business Forum.

[ecs]

You can do this quite informally as a sole trader. If you make over £2.5k then you can fill in a tax return to declare your income; If it's less then you phone up HMRC and tell then you're making money on the side (according to the online tax return form). They will adjust your PAYE and take the money you owe them.

Or cash...

[Rick_1138]

Hi guys,

thanks for the first replies.

TBH at the moment this would be ad-hoc work, in the future it MAY be more regular but this is for a bit of an opportunity and i would need to declare any profit, but because i already earn over the £10.600k threshhold and pay PAYE i wasnt sure if i have to declare it as a matter of course.

I thought about visiting the local HMRC office and asking what i would need to submit, or local business enterprise places.

Again thought this is very adhoc for now as its in my spare time, doing this as a second business would see my fiancee skin me alive for small beer money.

Though i realise about working out my heating\lighting\rent (as a business premises), buying stoc etc, however as i own all my own paints and brushed, and i would be supplied the models in this instance.

Its all a bit confusing tbh.

Though i realise the the importance of ensuring mr tax man gets his share and nothing more...less if possible lol

[Eric Mc]

The fact that you are initially using stock you already have does NOT mean that you should ignore the cost of that stock if you are using it to make goods that will be sold on. HMRC (and any accountant) would EXPECT you to build into your profit and loss account an estimate of the cost of those items that were bought in advance and then consumed in producing the items you end up selling.

No doubt, as the "business" continues, you will find yourself buying new materials specifically to enable you to fulfill your orders. That's what all businesses have to do.

[Rick_1138]

Eric Mc said:

The fact that you are initially using stock you already have does NOT mean that you should ignore the cost of that stock if you are using it to make goods that will be sold on. HMRC (and any accountant) would EXPECT you to build into your profit and loss account an estimate of the cost of those items that were bought in advance and then consumed in producing the items you end up selling.

No doubt, as the "business" continues, you will find yourself buying new materials specifically to enable you to fulfill your orders. That's what all businesses have to do.

Hi Eric,

Thanks for the advice.

I think the fact i would probably be earning about £150 on this job at most makes it difficult to work out profit\costs.

My paint stocks and brushes alone i have obtained in the last year would amount to twice that, but i have no receipts as it is a hobby, its only in the last few months the idea of turning it into a sole trader side business has appeared, so i have no experience in proving my costs for taxation purposes if that makes sense.

Basically i wouldn't know how to work out what i make as profit, but if i worked out my cost of heating my home\ work out how much that costs to heat my spare room, etc include equipment like airbrush, compressor, lights, PPE etc, and i am already in the hole for over £1500 etc but this would have been purchased over a few years prior.

I know these questions seem silly, i just don't want to get into bother with tax for something so small.

Thanks for all help though

[Eric Mc]

At that tiny level of activity you may very well be generating an actual business loss - if you properly took into account materials consumed and allocation of overheads. If that is the case, you do not need to make any sort of return at all as HMRC prefers people making losses NOT to log them. Losses can be used to reduce future business tax bills or even reclaim tax from other activities, such as employment.

For the moment I'd be inclined to keep a running review of what you are doing and if the commission work starts going into the thousands rather than the hundreds, then start worrying about whether you are making a business profit that needs to be returned to HMRC.

[sumo69]

For info, the OP should know that there are no longer any "drop-in" Tax Enquiry Centres - its all dealt with over the phone nowadays!

David

[Rick_1138]

Thanks for all the tips guys, best advice i have had.

One thing, even if i am making a loss (at this point i would be given costs involved of materials etc, do i still need to set up some form of trading name\formalise as a side business?

Or can i trade under my own name just invoicing and keeping records of work and income?

[Eric Mc]

Rick_1138 said:

Or can i trade under my own name just invoicing and keeping records of work and income?

Absolutely. No requirement to have a trade name - unless you want one.

[P700DEE]

The question surely comes down to is this a business ? If you have a hobby and every so often to "help" someone out you do a bit of painting for them and they "gift" you a few beer tokens then just ignore it. The tax man need not become interested if you earn small amounts. They are happy for people to rent out a room in their house without tax and normally will not chase those making a few £ on e-bay or from their hobby. Start earning significant sums (not £150) on a regular basis and they should be involved and you can choose how to deal with it.

If you buy a model, paint it and sell it you make a capital gain, you are allowed about £8000 in any tax year without paying capital gains tax.

It is a business if you want to start up and make money and want the protection and benefits of either sole trader or limited company. I can't advise on these or when it becomes necessary.

[Rick_1138]

P700DEE said:

The question surely comes down to is this a business ? If you have a hobby and every so often to "help" someone out you do a bit of painting for them and they "gift" you a few beer tokens then just ignore it. The tax man need not become interested if you earn small amounts. They are happy for people to rent out a room in their house without tax and normally will not chase those making a few £ on e-bay or from their hobby. Start earning significant sums (not £150) on a regular basis and they should be involved and you can choose how to deal with it.

If you buy a model, paint it and sell it you make a capital gain, you are allowed about £8000 in any tax year without paying capital gains tax.

It is a business if you want to start up and make money and want the protection and benefits of either sole trader or limited company. I can't advise on these or when it becomes necessary.

That is basically how i have been operating.

The only reason i am checking here is basically as this offer is a relatively regular commission work on a few things for a model making business, so as it would be a business basically contracting my services, i wasnt sure if it needed formalising, that's the main issue

[Eric Mc]

P700DEE said:

The question surely comes down to is this a business ? If you have a hobby and every so often to "help" someone out you do a bit of painting for them and they "gift" you a few beer tokens then just ignore it. The tax man need not become interested if you earn small amounts. They are happy for people to rent out a room in their house without tax and normally will not chase those making a few £ on e-bay or from their hobby. Start earning significant sums (not £150) on a regular basis and they should be involved and you can choose how to deal with it.

If you buy a model, paint it and sell it you make a capital gain, you are allowed about £8000 in any tax year without paying capital gains tax.

It is a business if you want to start up and make money and want the protection and benefits of either sole trader or limited company. I can't advise on these or when it becomes necessary.

Totally wrong approach.

You cannot compare a small business with "rent-a-room". If you have a lodger the basic rule is you return the rents you receive from that lodger - LESS the normal allowable landlord type costs. There is an OPTION to use the "Rent-A Room" scheme if you want to and you qualify. "Rent-a-room" was specifically set up to assist those struggling to hold on to their homes in the recession of the early 1990s.

There was no similar scheme set up for small businesses.

If your "hobby" is generating profits for you, it's no longer a hobby and the profits must be returned for tax purposes. If the "hobby" is generating losses, it's probably still a hobby. After all, one of the definitions of a hobby is that it is something a person does for fun and relaxation with no intention of making money out of it.

[ofcorsa]

I've had this kind of question recently,

Magic has been a hobby for a long time, Done a few booking recently. Mainly as a favor, beer money kind of thing but this has lead to a few bookings. Still I have spent far more on books,training and props than I will earn back this year. I think before it get profitable it would be too much with my full time work anyway, but this discussion was helpful

[Eric Mc]

I'm sure you could make any profits disappear

[Rick_1138]

Eric Mc said:

I'm sure you could make any profits disappear

TaDa!