Sole trader alongside PAYE job and tax
Discussion
I’m currently employed as PAYE, working offshore and I would like to start sole trading business on the side, on my time off during the week or weekend.
Rather than doing this to make personal profit I would like to build up the business, getting a good name for myself and buying tools/training and equipment with any profit.
I have a question regarding tax, let’s say my business makes £2000 profit in the first year, I would expect to pay £800 tax. Could I then simply spend £200 on a training course related to my business, £200 on say a new tools and £400 on some access equipment like scaffold and not have to pay any or very little tax at all?
The above seems too simple and maths isn’t my strong point so I would appreciate if someone could point out any flaws in my plan.
Thank you
Rather than doing this to make personal profit I would like to build up the business, getting a good name for myself and buying tools/training and equipment with any profit.
I have a question regarding tax, let’s say my business makes £2000 profit in the first year, I would expect to pay £800 tax. Could I then simply spend £200 on a training course related to my business, £200 on say a new tools and £400 on some access equipment like scaffold and not have to pay any or very little tax at all?
The above seems too simple and maths isn’t my strong point so I would appreciate if someone could point out any flaws in my plan.
Thank you
The short answer is No - you can get tax relief off some of the expenses, but this comes of the profit, not the tax.
So to pay zero tax, you would need to purchase £2,000 of assets/ expenses, not £800
Then each item is treated differently some are assets, some business expenses, some personal expenses.
Edited to add.
This might be good place to start.
https://www.gov.uk/simpler-income-tax-cash-basis/i...
Wife and her friend offer 'painting courses', the wife went on a yoga wellbeing teaching course, so they could expand what they offered clients. This was not allowed as a business expense as it was not directly linked to the existing venture.
So to pay zero tax, you would need to purchase £2,000 of assets/ expenses, not £800
Then each item is treated differently some are assets, some business expenses, some personal expenses.
Edited to add.
This might be good place to start.
https://www.gov.uk/simpler-income-tax-cash-basis/i...
Wife and her friend offer 'painting courses', the wife went on a yoga wellbeing teaching course, so they could expand what they offered clients. This was not allowed as a business expense as it was not directly linked to the existing venture.
Edited by Wilmslowboy on Wednesday 25th December 10:16
gotomuzzi said:
Thank you for explaining that, that makes sense! I’m not sure I will be earning enough at the start to justify going limited and paying more for an accountant.
Running a small business as a ST isn't difficult as long as you are organised & you don't need much more than a spreadsheet to keep track of everything. I would suggest a meeting with an acountant so you get an understanding of how to keep records & advice on what you can claim in expenses. It's s deductable expense.Don't skimp on insurance, especially if you are talking about using access equipment. It won't be cheap.
fridaypassion said:
You pay 2 lots of NI as well. Better to go LTD from the outset. I had some poor advice and did about 6 years as a sole trader.
Surely there's no NI to pay on self-employment if profit is below the threshold - around £5.6k?I was a sole trader alongside a PAYE job for 20-odd years , never paid NI. Back in the day, it was a case of getting a "small earnings exemption" certificate. I think they stopped issuing certificates a few years ago, now it's purely done on declared profit.
Halfway through the last tax year I gave up my PAYE job, more time spent on my own business, more profit. The first tax bill as a full-time sole trader was a bit of a shocker, as it includes payment on account towards the current year
Also, if you do it as a ST and lose money you will be able to offset this loss against your PAYE income. If you go limited you will not be able to use that loss except against future profits.
As a ST you might be able to claim the small trading allowance if the profits are less than £1,000, so no tax to pay.
As a ST you might be able to claim the small trading allowance if the profits are less than £1,000, so no tax to pay.
clockworks said:
Surely there's no NI to pay on self-employment if profit is below the threshold - around £5.6k?
I was a sole trader alongside a PAYE job for 20-odd years , never paid NI. Back in the day, it was a case of getting a "small earnings exemption" certificate. I think they stopped issuing certificates a few years ago, now it's purely done on declared profit.
Halfway through the last tax year I gave up my PAYE job, more time spent on my own business, more profit. The first tax bill as a full-time sole trader was a bit of a shocker, as it includes payment on account towards the current year
Wasn't aware of the additional allowance actually. I hit the ground running a bit when I started. I was a sole trader alongside a PAYE job for 20-odd years , never paid NI. Back in the day, it was a case of getting a "small earnings exemption" certificate. I think they stopped issuing certificates a few years ago, now it's purely done on declared profit.
Halfway through the last tax year I gave up my PAYE job, more time spent on my own business, more profit. The first tax bill as a full-time sole trader was a bit of a shocker, as it includes payment on account towards the current year
Self Employed people (NOT Directors of their own limited companies) who run businesses as a "sole trader" pay two separate types of National Insurance, Class 2 and Class 4.
Class 2 used to be paid monthly or quarterly but is now paid annually but it is a fixed annual amount of £156.00. It is only payable if your TAXABLE business profits are over £6,365.
Class 4 is also paid annually and is a percentage amount. The current rate is 9% on all TAXABLE business profits over £9,632 and under £50,000. Profits exceeding £50,000 will suffer Class 4 NI of 2% on those additional profits.
The only NI that actually counts for your State Pension is the Class 2 - even though it's a much lower amount. Class 4 is really an extra tax and confers no specific benefit to the payer.
A number of Chancellors have tried to sort out the complete and absolute mess that Self Employed National Insurance is. Hammond announced he was going to abolish Class 2 and just use the Class 4 amount (which would have been increased) to count as a the State Pension entitlement amount for the self employed. However, the underlying legislative changes to the entire NI and State Pension system was so complex and difficult that he gave up.
The current guy has kept well away from messing with Class 2 and 4 NI - although, to be honest, he hasn't produced a Budget yet.
Class 2 used to be paid monthly or quarterly but is now paid annually but it is a fixed annual amount of £156.00. It is only payable if your TAXABLE business profits are over £6,365.
Class 4 is also paid annually and is a percentage amount. The current rate is 9% on all TAXABLE business profits over £9,632 and under £50,000. Profits exceeding £50,000 will suffer Class 4 NI of 2% on those additional profits.
The only NI that actually counts for your State Pension is the Class 2 - even though it's a much lower amount. Class 4 is really an extra tax and confers no specific benefit to the payer.
A number of Chancellors have tried to sort out the complete and absolute mess that Self Employed National Insurance is. Hammond announced he was going to abolish Class 2 and just use the Class 4 amount (which would have been increased) to count as a the State Pension entitlement amount for the self employed. However, the underlying legislative changes to the entire NI and State Pension system was so complex and difficult that he gave up.
The current guy has kept well away from messing with Class 2 and 4 NI - although, to be honest, he hasn't produced a Budget yet.
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