Part Time Business/Ful Time Employment - Tax
Discussion
Sorry if this has been done before. 
I work full time for HMG and I intend to start a part time business, as a sole trader initially, later on this year. I know I have to register with HMRC within three months of start up but my question is this: How will they assess my income tax. Will they take my earnings from my 'day job' (not far off the threshold for 40% income tax) & then add my profits from the the busines to this? If so will this mean that everything I earn from the business will be taxed at 40%?
Might seem like a dumb question to all you experts, but this is all new to me. Many thanks in advance for any advice offered.
I work full time for HMG and I intend to start a part time business, as a sole trader initially, later on this year. I know I have to register with HMRC within three months of start up but my question is this: How will they assess my income tax. Will they take my earnings from my 'day job' (not far off the threshold for 40% income tax) & then add my profits from the the busines to this? If so will this mean that everything I earn from the business will be taxed at 40%?
Might seem like a dumb question to all you experts, but this is all new to me. Many thanks in advance for any advice offered.
The answer is yes, most, if not all of your profits from the sole-trading activity will be taxed at your highest rate of Income Tax.
Depending on the level of profits generated by the business, you may be exempted from having to pay any Class 2 or Class 4 NI.
On the other hand, if the sole -trading produces a loss, you may be able to offset the loss gainst your other income in the tax year and obtain a tax refund.
Depending on the level of profits generated by the business, you may be exempted from having to pay any Class 2 or Class 4 NI.
On the other hand, if the sole -trading produces a loss, you may be able to offset the loss gainst your other income in the tax year and obtain a tax refund.
Edited by Eric Mc on Wednesday 25th April 23:44
Eric - I concur with all the other comments on here about you: you are a star! Hadn't even considered the prospect of offsetting losses against my day job's tax.
But you mention another area of concern - NI. Is it more or less the same situation - in that I pay my contributions on profits over & above what I pay through my salary? Thanks again.
But you mention another area of concern - NI. Is it more or less the same situation - in that I pay my contributions on profits over & above what I pay through my salary? Thanks again.
Edited by brucev8 on Thursday 26th April 00:03
Edited by brucev8 on Thursday 26th April 00:03
Unlike tax, NI is calculated on a "job by job" basis. Your income from the single activity has to exceed the thresholds in that single activity for NI to be payable on that single activity.
In other words, if you have two sources of earned income, you have two available NI lower earnings thresholds - one for each activity.
In tax, your income from all sources is grouped together and you pay tax once your total income exceeds the personal tax allowance.
In other words, if you have two sources of earned income, you have two available NI lower earnings thresholds - one for each activity.
In tax, your income from all sources is grouped together and you pay tax once your total income exceeds the personal tax allowance.
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