QUESTION: I have been employed since leaving university many years ago, but have recently started working as a self-employed travel agent to make ends meet during this cost of living crisis. What tax matters do I need to be aware off?
ANSWER: Now more than ever we are starting to see an increase in the number of people either taking on a second job or starting their own business to supplement their existing income from employment. There are many things to be aware of to ensure you don’t fall foul of HMRC.
You only have one tax free personal allowance per tax year and whether you have two jobs or one job or self-employment does not affect this. In 2023/24, the personal allowance is £12,570. The PAYE system is designed to treat one job as your primary employment (against which your personal allowance will be given in full) and the other jobs as secondary (which are taxed at the basic rate of 20 per cent).
In that scenario you should see a code number of 1257L (reflecting a tax-free personal allowance of £12,570 for the tax year 2023/24 with the last digit removed and a letter added) against one job and a BR (basic rate) code against the others.
As a self-employed individual who owns a sole-trader business you would have sole responsibility for the business, its debts, employees, customers etc. The profits from the business would from part of your sources of income and included on your self-assessment income tax return and taxed accordingly.
You should register for self-assessment and complete a tax return to declare your income and expenses like any other self-employed individual. and there are other taxes that also need to be considered. If you are employing staff, you would need to register as an employer and operate PAYE. Registration for VAT should also be considered either compulsory or voluntarily registration.
If you are going to be earning less than £1,000 (before any expenses are deducted) from this type of activity, that may mean that you don’t need to report this income to HMRC or pay tax on it, depending on your other circumstances. This is known as the trading allowance, and it exempts trading, casual and/or miscellaneous income of up to £1,000 per tax year from income tax and national insurance contributions. The allowance can be used against any trading, casual or miscellaneous income.
If you earn more than £1,000 then you will need to pay income tax on your profits. In addition to income tax, Class 4 and Class 2 national insurance contributions would also be due. For the 2023/24 tax year Class 4 NIC are paid on profits in excess of £12,570 at two different rates, 9 per cent on profits between £12,570 to £50,270 and 2 per cent on profits over £50,270. Class 2 NIC is payable at a flat rate of £3.45 per week.
The tax year runs from April 6 to the following April 5. For the 2023/24 tax year you will have to file your tax return and pay any additional tax by January 31 2025 at the latest.
Starting your own business, as previously noted, can be a daunting task, however, it can be also be exciting as you embark on your new venture. It is important that you engage the services of an accountant who will grow with your business and help you reach your goals and aspirations.
:: Shane Martin (s.martin@fpmaab.com) is tax director at FPM Accountants (www.fpmaab.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,
