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Are you aware of the tax implications when taking on a second job?

Are you aware of the tax implications when taking on a second job?

Mike Wakeford

Have you thought about taking on an extra job during the COVID – 19 pandemic? Perhaps you have been put on furlough and have spent time thinking of innovative ways to start a side business, to pass some time and inevitably save up some money, for when life returns to normal. 

Many entrepreneurs seized the opportunity to start their own business during the pandemic and analysis by the Centre of Entrepreneurs found that nearly half a million companies were launched in the UK between March and September last year,  an increase of 44,500 over new businesses registered for the same period in 2019. 

If you are here because you are considering ways to make a bit of extra cash by working for yourself or to pass time whilst on furlough, then it is important to make yourself aware of what self employed tax and National Insurance you will be expected to pay. 

So, when do you start paying tax? 
To sum it up, everyone in the UK is able to earn a certain amount per year, tax free – this is known as your personal allowance and for 2021/22 it stands at £12,570. If you exceed the personal allowance threshold of £12,570 then you must let HMRC know. 

If the income that you are generating has come from activities including buying and selling on Ebay, a small Facebook business, gardening or baby sitting as examples, then as long as you don’t earn over the £12,570 personal allowance threshold a year in total from all sources you will not have to pay income tax.

The threshold at which you will be liable to  National Insurance Contributions  is  lower than this, so you may have to pay  these  This can be a complicated area where you have more than one source of earnings so it is important to take advice on this.

But, this is a second job – how much tax to I pay now? 
Freelancing or starting a business from home still counts as a second job if you are receiving furlough payments. So if your current ‘full time’ job exceeds the personal allowance of £12,570 you will be required to pay tax on your additional income as your personal tax free allowance will be already used up by your first job. 
Usually this will be charged at 20% on earnings up until the higher tax rate cut off of £50,270. 

Telling HMRC
It is important to let HMRC know that you have set up a new business, or are receiving extra income. You must register at HMRC as a new business if you earn more than £1,000 in a tax year and you will have to submit a tax return. But if you aren’t likely to earn over £1,000 from your second  business, then you will not need to file a tax return, due to HMRC introducing a £1,000 trading allowance. 

Need our assistance? 
If you have set up a second business and you are unsure on what the tax implications may be, our team of tax advisers are on hand to help you. 

We offer a 1 hour free consultation. 
Contact your local Moore office today. 

Visit our Coronavirus Hub for further business support articles.