QUESTION: I started an internet business from my home at the start of this year and it is going really well – much better than I imagined. I have a full-time job and I am able to do this work in the evenings and the weekends. As I pay my taxes through my monthly wages, what do I need to do to with the money I earn from this work?
ANSWER: It is a requirement of the tax legislation that all self-employed people who started trading in the 2016/17 tax year that they have just weeks left to register for self-assessment with HMRC to meet the 5 October deadline.
This includes self-employed people working in the so-called 'gig economy' (a labour market characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs).
By law, self-employed people must notify HMRC of a new source of income, such as receipts from a trade or business, by October 5 in the tax year following that in which the new source began.
For example, if a person begins trading in the tax year 2016/17 which runs from April 6 2016 to April 5 2017, they must tell HMRC by October 5 2017 so that they can be taxed under self-assessment and assessed for any national insurance contributions they owe. Such people may include ‘gig economy’ workers.
The fact that your business is irregular and often ‘on demand’ which reflects the nature of the gig economy income it may not even occur to people that their activity is taxable. They may also be unaware that where the level of income means that there will be no tax or National Insurance due, HMRC should still be notified as it may still be necessary to complete a tax return.
A failure to notify a new source of income and to complete and submit a tax return when required to do so can lead to financial penalties. If a person’s activity is regular, organised and is done with a view to generating a profit, then this will put them within the realms of self-employment and the UK's complex self-assessment tax return system.
There is a real risk of penalties for failure to notify HMRC, which are based on the tax that could potentially be lost as a result of the failure to notify on time. Where the October 5 deadline is missed, a person should still register as soon as they find out they should. As long as a tax return is submitted and any tax due is paid on time (normally by the following January 31), there will be no potential lost tax revenue and thus no penalty to pay.
It is also important to remind people that even income from one-off jobs or very casual work is taxable. This includes work that does not fall into a category of employment or self-employment, which may be taxable as ‘miscellaneous’ income.
In this case the worker still needs to tell HMRC, it is just that HMRC may be able to collect any tax owed on it through adjusting their PAYE tax code instead (if they have one).
:: Malachy McLernon (m.mclernon@pkffpm.com) is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
