Employed Paye But Have Extra Work

[chronyx]

I am employed by a company, but have also been offered extra work. The person who offered the extra would prefer I invoice him rather than 'cash-in-hand' as it comes out of the business that way.

How would I go about making sure tax, NI, etc is all accounted for?

Have never done any self-employed work so sorry if this is a stupid question!

[ken_ichikawa]

I am employed by a company, but have also been offered extra work. The person who offered the extra would prefer I invoice him rather than 'cash-in-hand' as it comes out of the business that way.

How would I go about making sure tax, NI, etc is all accounted for?

Have never done any self-employed work so sorry if this is a stupid question!

Take the cash and keep quiet about it.

Other wise. Just have your PAYE code adjusted for this extra misc income which is non PAYE. Elsewise they make you pay class 2 and make you do tax returns as well. You can justify this to HMRC saying it is not a continuing trade but a one off non repeating kind of side income.

[Riedquat]

Take the cash and keep quiet about it.

Other wise. Just have your PAYE code adjusted for this extra misc income which is non PAYE. Elsewise they make you pay class 2 and make you do tax returns as well. You can justify this to HMRC saying it is not a continuing trade but a one off non repeating kind of side income.

Talking of being made to do tax returns I've been made to do so ever since I was abroad for 15 months and things got a little confusing - understandable for that year, but they've been making me do them since, despite it simply being straightforward PAYE these days. How do I get them off my back? Will they give up expecting me to do them, or will I have to pester them? Mind you, it got me a refund last time

[ken_ichikawa]

Talking of being made to do tax returns I've been made to do so ever since I was abroad for 15 months and things got a little confusing - understandable for that year, but they've been making me do them since, despite it simply being straightforward PAYE these days. How do I get them off my back? Will they give up expecting me to do them, or will I have to pester them? Mind you, it got me a refund last time

They'll ask you to complete the one issued for the current year, before they used to get the hint i.e. 100% PAYE = no tax return. But you have to phone them (and get rinsed on their 0845 number) wait for about 2-3 hours on their phone lines and tell them why you no longer need a tax return done.

[Riedquat]

They'll ask you to complete the one issued for the current year, before they used to get the hint i.e. 100% PAYE = no tax return. But you have to phone them (and get rinsed on their 0845 number) wait for about 2-3 hours on their phone lines and tell them why you no longer need a tax return done.

Right, I'll do the 2010-11 one then try to get shot of them after that. I'm surprised they're keeping at it though, since it worked out as a refund last time. If they claimed that I owed them money I could see them keeping on at me, I thought they'd be far less keen with having to give some of it back!

[cashinmattress]

I am employed by a company, but have also been offered extra work. The person who offered the extra would prefer I invoice him rather than 'cash-in-hand' as it comes out of the business that way.

How would I go about making sure tax, NI, etc is all accounted for?

Have never done any self-employed work so sorry if this is a stupid question!

Setting up in business as a sole trader

Becoming a sole trader is the simplest way to get your new business off the ground.

Once you have told HMRC that you intention to become self employed, you can start trading immediately (subject to any industry-specific licences you might need).

Sole traders can adapt quickly to any changes in their businesses, without having to concern themselves with a great deal of bureaucracy. As a sole trader, you will have complete control over your business and finances.

However, as no distinction is made between your personal and business finances, you will be ultimately liable should anything go wrong. For this reason, it is worth spending time considering which business structure is best for you.

Starting Up as a Sole Trader

Sole traders do not need to notify Companies House, nor deal with any administrative or accounting requirements which are required of limited companies.

As a general rule, you must register with HMRC is you decide to go self-employed once you start working for yourself.

If you’re unsure whether or not you need to register as self-employed, you can refer the leaflet 'Employed or Self Employed' for Tax & National Insurance here (in PDF format).

If you’re thinking about becoming self-employed, there are three ways to register with HMRC:

1) Register online with HMRC here.

2) Call the Newly Self Employed Helpline on 0845 915 4515.

3) Fill in Form CWF1 here (PDF).

You should register the moment you start out as a sole trader, otherwise you could incur a financial penalty.

Tax & National Insurance

As a sole trader, your business income is counted alongside any other personal income you have for tax purposes, so accounting is relatively straightforward.

You should be aware that will be personally liable for any debts you incur in the running of your business which wouldn't be the case under the limited company route.

Your tax is calculated via the annual self-assessment process. You will have to pay income tax and National Insurance Contributions (NICs) on your profits. Any losses you make can be offset against your other income.

When you fill in your annual self-assessment form, HMRC will calculate any Class 4 NICs you have to pay on your business profits.

Sole traders also have to pay Class 2 NI contributions (currently £2.50 per week: 2011/12 Tax Year).

For more in-depth information, read our popular Sole Trader Tax Guide, or browse through our general taxation section here.

Value Added Tax (VAT)

Despite registering as 'self employed', you will not automatically be registered for Value Added Tax.

You will have to register for VAT if your business turnover reaches the current threshold during any 12 month period, or if you expect it to do so. The current threshold is £73,000 (from 1st April 2011).

The current standard VAT rate is 20% (from 4th January 2011).

You may be better off using the Flat Rate VAT scheme, which provides a simple way of accounting for VAT using an annual percentage depending on your industry type.

Visit our VAT section for more details, and always consult your accountant if you have any questions on tax matters.

Business Insurance

Once you've decided to become a sole trader, you should think about taking out the appropriate business insurance cover for your new venture. Some types of insurance are mandatory (such as if you employ people), whereas others will simply provide peace of mind that your business will be protected in case something goes wrong.

Most sole traders will look at taking out public liability insurance and employers liability cover, as as well as any other policies required for industry-specific reasons, or if customers or clients require it.

Sole Trader Bank Account

Once you set up as a sole trader, you will most likely want to open a business bank account As a sole trader, you can open an account with a specific name such as "Peter Smith Trading As PTS Construction". There is no legal requirement to open a separate bank account to your personal one, but many sole traders elect to do so. It may be simpler for accounting purposes, and look more professional. The choice is up to you.

Don't necessarily open an account with your personal bank account, as you may get a better deal elsewhere. You will often find that the major high street banks offer 12 to 18 months' free banking, which can represent a significant saving in monthly transaction fees. See our guide to choosing a business bank account, which includes details of some of the current free banking offers on the market here.

Other Issues

The sole trader route is the most popular way of starting up in business in the UK, however if is not the best route for everyone, which is why we always recommend discussing your choices with an accountant or other adviser.

Sole traders are liable for any business debts or losses they make, or if forced into bankruptcy, whereas the liability of limited company directors is limited (as the name suggests).

In addition, in some industries, most businesses are incorporated, whereas in others they are not.

Always remember, that if you become a sole trader, you can easily switch to the limited company route later on if you want to. Ask your accountant or business adviser if you have any questions about which route to take.

[chronyx]

So setting up as a sole trader will not impact my current employment?

[SarahBell]

So setting up as a sole trader will not impact my current employment?

No.

Not unless your current employer doesn't like you working on the side.

If you're not going to earn a lot it's quite a PITA but you'll sleep better knowing the tax man won't be hounding you perhaps

[ken_ichikawa]

So setting up as a sole trader will not impact my current employment?

Nope, I ran 1 sole trade and 2 microcorporations on the side while working as an employee.

The thing is sole trader is a PITA, because HMRC will demand class 2 from you, and will deny they are wrong in putting out penalties for non class 2 payment. (make under £5K no pay class 2). you have to renew the class 2 exemption every year in advance. And you have to complete tax returns which open you up to a ton of penalties and charges. As well as HMRC estimating one off declared income as income you'll get forever and a day. Thus charging you tax on money you've not made (payments on account).

So just keep quiet about it or have your tax code adjusted for a one off.

[chronyx]

Thanks a lot guys.

[deflation]

Nope, I ran 1 sole trade and 2 microcorporations on the side while working as an employee.

The thing is sole trader is a PITA, because HMRC will demand class 2 from you, and will deny they are wrong in putting out penalties for non class 2 payment. (make under £5K no pay class 2). you have to renew the class 2 exemption every year in advance.

I applied in Sept 2010 and was given exemption from class 2 NI contributions until April 2013. I don't expect to make enough 'profit' to need to pay it either.

[Pent Up]

They'll ask you to complete the one issued for the current year, before they used to get the hint i.e. 100% PAYE = no tax return. But you have to phone them (and get rinsed on their 0845 number) wait for about 2-3 hours on their phone lines and tell them why you no longer need a tax return done.

It took me three years of calling them to get them to stop sending tax returns when I changed from self employed to paye. I'd call them and theyd say out it's been changed. Then next year I receive another one and another fine! They are a joke!

[DrMartinSanchez]

It took me three years of calling them to get them to stop sending tax returns when I changed from self employed to paye. I'd call them and theyd say out it's been changed. Then next year I receive another one and another fine! They are a joke!

Same here. This has happened every year for the last 3 years, even though I told them I don't have any income, apart from my salary (on PAYE).

I also tried to fill their tax return online, but the login details won't work!

The fine has now increased £300, but I couldn't care less. I have wasted enough time with them already.