PAYE and self employed/sole trader
Discussion
Morning all,
My wife is currently employed by a charity, she works 40hrs/wk and is a standard PAYE employee. She's wanting to start offering some counselling services outside of her job role (outside of the scope that is offered via the charity, so no conflict of interest). The idea is to offer said services evening/weekends, then if things go well she has the option to reduce her hours at the charity. We've both only ever been PAYE employees, so have very little knowledge into the tax implications.
Am I correct in thinking, that whilst trading as a sole trader, it's simply a case of registering for self assessment, completing said paperwork, and then paying whatever tax/NI is due at the end of the financial year?
My wife is currently employed by a charity, she works 40hrs/wk and is a standard PAYE employee. She's wanting to start offering some counselling services outside of her job role (outside of the scope that is offered via the charity, so no conflict of interest). The idea is to offer said services evening/weekends, then if things go well she has the option to reduce her hours at the charity. We've both only ever been PAYE employees, so have very little knowledge into the tax implications.
Am I correct in thinking, that whilst trading as a sole trader, it's simply a case of registering for self assessment, completing said paperwork, and then paying whatever tax/NI is due at the end of the financial year?
Pretty much, although you pay tax twice a year in January & July & pay half on account, which feels like a swindle. Learn a bit about record-keeping & don't forget she can claim for allowable expenses she incurs, including stuff like PCs/printer/training etc. Check her motor insurance as she will need "in connection with her business" (Class B?) if she is driving to appointments & consider public liability insurance especially if people are visiting your home.
The first step is Registering with HMRC of course. Presumably she won't be looking at VAT registration to start with.
The first step is Registering with HMRC of course. Presumably she won't be looking at VAT registration to start with.
There is no "said paperwork". However, a person who is self employed (i.e. a sole trader) is obliged by tax law to keep sufficient books and records which enables a reasonably true and fair set of figures which will allow the business' profit or loss to be ascertained.
The figures obtained from these annual accounts are then inserted in the correct boxes in the "Self Employed" pages of the annual Self Assessment tax return.
There may be extra items that need to be accounted for outside the main body of the business accounts or accounted for in a slightly different way for tax purposes. A good example of this would be accounting for the acuisition of assets and the way in which tax relief can be obtained on these assets.
In 2026, the whole system is changing - IF HMRC can ever get their act together
The figures obtained from these annual accounts are then inserted in the correct boxes in the "Self Employed" pages of the annual Self Assessment tax return.
There may be extra items that need to be accounted for outside the main body of the business accounts or accounted for in a slightly different way for tax purposes. A good example of this would be accounting for the acuisition of assets and the way in which tax relief can be obtained on these assets.
In 2026, the whole system is changing - IF HMRC can ever get their act together
Different line of business, but very similar to how I started self-employment. For 20 years I was PAYE and self-employed at the same time. Gave up PAYE 5 years ago, but now getting my pension and still self-employed.
Doing the self assessment takes me about 3 or 4 hours, once a year - adding up all the income and expenses, working out allowances, mileage logs, doing the return online. Not difficult. I claim the 45p a mile allowance, WFH allowance, etc.
I've only ever had to make a midyear payment on account once. AFAIK, the requirement is based on how much profit is declared for the previous year. Below the threshold, it's just one annual payment, due in January.
You get an extra "NI-free" allowance for the self- employment.
I have a separate savings account with a standing order to transfer each month from my bank account. I use this to save for the tax bill.
Doing the self assessment takes me about 3 or 4 hours, once a year - adding up all the income and expenses, working out allowances, mileage logs, doing the return online. Not difficult. I claim the 45p a mile allowance, WFH allowance, etc.
I've only ever had to make a midyear payment on account once. AFAIK, the requirement is based on how much profit is declared for the previous year. Below the threshold, it's just one annual payment, due in January.
You get an extra "NI-free" allowance for the self- employment.
I have a separate savings account with a standing order to transfer each month from my bank account. I use this to save for the tax bill.
clockworks said:
I've only ever had to make a midyear payment on account once. AFAIK, the requirement is based on how much profit is declared for the previous year. Below the threshold, it's just one annual payment, due in January.
Not exactly. The need to make additional Payments on Account in January and July is not "profit" based but "tax" based. If your Self Assessment liability for the tax year for which you have just completed the Self Assessment tax return for is under £1,000, you do not have to make any Payment on Account for the next tax year.If your Self Assessment tax liability as calculated for the Self Assessment tax return exceeds £1,000, then you WILL be expected to make Payments on account for the next tax year.
A theoretical example -
I have just completed my tax return for tax yer 2022/23. It shows a Self Assessment liability of £1,200.
This means I have to pay the £1,200 by 31 January 2024.
In addition, because the bill exceeds £1,000, I will also need to make two Payments on Account of £600 each for tax year 2023/24. The first £600 payment is due on 31 January 2024 and the second on 31 July 2024. By their nature, these 2023/24 Payments on Account are "estimated" so may actually be higher or lower than the actual 2023/24 liability - when it comes time to calculate it.
If you KNOW that your genuine 2023/24 liability is going to be less than the combined Payments on Account, you are allowed to reduce the Payments on Account to a more realistic level - even Nil if appropriate.
Self Assessment liabilities are not always just due to "profits on self employment". A self employed person might also have other income that falls under the self assessment remit such as -
rental income
savings income over the savings threshold
dividends
bank interest received
pay back of over-claimed Child Benefit
So, even your trading profits have fallen, when you take into account the other possible sources of self assessed income, you might still have a liability exceeding £1,000.
That makes sense.
I had very little "unearned" income, just a couple of hundred pounds savings interest. I have a lodger, but that's under the rent a room scheme.
I think I'll be over the £1k threshold going forward though, as I've put my prices up in an attempt to put potential customers off. It hasn't worked, busier than ever.
I'm doing the self assessment today.
I had very little "unearned" income, just a couple of hundred pounds savings interest. I have a lodger, but that's under the rent a room scheme.
I think I'll be over the £1k threshold going forward though, as I've put my prices up in an attempt to put potential customers off. It hasn't worked, busier than ever.
I'm doing the self assessment today.
HMRC intends to end self assessment in 2026 so EVERYBODY will have to get used to an entirely new way of doing things.
Except, I don't think it's going to happen. Only yesterday a report was issued by a group of software developers that they are completely confused as to what software will be expected to provide to those who previously submitted Self Assessment tax returns.
Considering that the proposal to end Self Assessment was announced in the March 2015 Budget, it is utterly abysmal that, over eight years on, the situation is still very, very unclear.
Except, I don't think it's going to happen. Only yesterday a report was issued by a group of software developers that they are completely confused as to what software will be expected to provide to those who previously submitted Self Assessment tax returns.
Considering that the proposal to end Self Assessment was announced in the March 2015 Budget, it is utterly abysmal that, over eight years on, the situation is still very, very unclear.
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