Quick tax question
Discussion
If you have a job that pays normal PAYE etc at the just at the higher rate and you take a second job, presumebly an extra income would be taxed at that rate, even if it for a very small amount?
to explain:
A friend currently has a full time job, elements of which he dosen't like, on which he pays tax at the higher rate. He also has an occasional hobby which occasionally pays a few hundred pounds per month, when he chooses to do it, and when he can find someone who wants him to do it. He could take a demotion at work, back to a job he prefers, but it would cost about £6k pa (before tax) in lost income. This reduction would put him back into the lower tax band.
£6k pa = £500 pm = £300 after tax.
His hobby pays freelance. He gets a cheque for £2-300 which he pays into his bank account without troubling the tax authorities. Curently this has only happened a few times. He also incurs expenses which he pays out of his pocket.
He could take the demotion and (hopefully) recoup the £6k from doing the hobby more often but that becomes difficult if he has to pay 40% tax on it.
Is there a lower limit to what needs to be declared for tax? Ie should he be declaring the £2-300 when he earns it? Would he be able to claim something back on the expenses, such as fuel and materials, he incurs in the line of his work ?
Thanks!
to explain:
A friend currently has a full time job, elements of which he dosen't like, on which he pays tax at the higher rate. He also has an occasional hobby which occasionally pays a few hundred pounds per month, when he chooses to do it, and when he can find someone who wants him to do it. He could take a demotion at work, back to a job he prefers, but it would cost about £6k pa (before tax) in lost income. This reduction would put him back into the lower tax band.
£6k pa = £500 pm = £300 after tax.
His hobby pays freelance. He gets a cheque for £2-300 which he pays into his bank account without troubling the tax authorities. Curently this has only happened a few times. He also incurs expenses which he pays out of his pocket.
He could take the demotion and (hopefully) recoup the £6k from doing the hobby more often but that becomes difficult if he has to pay 40% tax on it.
Is there a lower limit to what needs to be declared for tax? Ie should he be declaring the £2-300 when he earns it? Would he be able to claim something back on the expenses, such as fuel and materials, he incurs in the line of his work ?
Thanks!
If he is already a higher rate tax payer, then ANY additional income received from another activity (employment, self employment, rental property, interest received, dividends received etc) will be subject to Income Tax at the higher rate.
Except in the case where the additional income is through another PAYE employment (or pension), any other additional income must be declared by the taxpayer by submitting a Self Assessment tax return. The legal onus is on HIM to declare this additional income and there are penalties if he fails to do this.
If his additional income is through a self employed activity, then, he is allowed to offset against the self employed income expenses incurred wholly and exclusively for the puropse of that particular self employed activity.
There are NO lower limits under which you are exempted from notifying HMRC that you have staerted receiving Self Employed limits.
However, IF the net Self Employed income is below the Small Earnings Exception (SEE) Limit for Class 2 national Insurance contributions, the taxpayer will be exempted from having to pay any Class 2 on his Self Employed earnings.
The SEE Limit for Class 2 NI is £5,075 per anum.
Except in the case where the additional income is through another PAYE employment (or pension), any other additional income must be declared by the taxpayer by submitting a Self Assessment tax return. The legal onus is on HIM to declare this additional income and there are penalties if he fails to do this.
If his additional income is through a self employed activity, then, he is allowed to offset against the self employed income expenses incurred wholly and exclusively for the puropse of that particular self employed activity.
There are NO lower limits under which you are exempted from notifying HMRC that you have staerted receiving Self Employed limits.
However, IF the net Self Employed income is below the Small Earnings Exception (SEE) Limit for Class 2 national Insurance contributions, the taxpayer will be exempted from having to pay any Class 2 on his Self Employed earnings.
The SEE Limit for Class 2 NI is £5,075 per anum.
Edited by Eric Mc on Wednesday 28th April 11:54
On the expenses - If he spent £50 pounds on materials and fuel and got paid £200 would he be taxed (and possibly NI'd) on the £150 balance?
What about expenses that were partial e.g. if one room of the house was an office and 25% of the car's milage was for the self employed work?
Thanks!
What about expenses that were partial e.g. if one room of the house was an office and 25% of the car's milage was for the self employed work?
Thanks!
BMWChris said:
On the expenses - If he spent £50 pounds on materials and fuel and got paid £200 would he be taxed (and possibly NI'd) on the £150 balance?
What about expenses that were partial e.g. if one room of the house was an office and 25% of the car's milage was for the self employed work?
Thanks!
"Yes" to the first question.What about expenses that were partial e.g. if one room of the house was an office and 25% of the car's milage was for the self employed work?
Thanks!
It is not unusual for sole-traders to have expenses which are "part business/part private". HMRC expects the taxpayer to claim that proportion of those expenses that are business related.
The tricky part is arriving at a fair and equitable method of ariving at a split.
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