Declaring income on a 2nd self employed job

[Driftwood999]

I hope someone can point us in the right direction on this. DS has a full time job with a good company which is obviously all declared etc. Recently he has had some success in starting a part time business on the side, but not enough to live on. He has a mortgage agreement in principle for the future based on his f/t job. Knows he now needs to declare the supplementary income because "that is the right thing to do" and also because he hopes it will enhance his borrowing power for a property purchase. Given the time of year anyone got some advice please on the HMRC rules. On people that have a regular full time job and are part time, self employed. Thanks.

He needs to register as SE with HMRC (their website talks you through it plus if you ring them they are generally very helpful). SE income from this tax year (2010-2011) needs to go on a tax return due by Jan 2012 and tax due paid then as well.
HTH

I just write a letter to the tax office each year detailing my expenses and earnings,and they seem happy with this and adjust my tax code accordingly, though the amounts of money involved arent enormous.

What document would he get back, demonstrating the extra earnings?

I just got a letter detailing my new tax code.

I think that for earnings over 6K a year you have to register as self employed, and then pay NI on that income.

thank you for your responses. eviscerateyourmemory, this is what confuses me, surely HMRC are interested in any "extra" earnings. DS has f/t job. The bottom line is, we think it is in his interests, to declare the supplementary income; it's obviously the right thing to do and a legal requirement, and will hopefully put him in a better position. Any thoughts, thank you again, it's good to just have a frank discussion!

It's possible to pay your tax liability up to a certain amount via your tax code but we tend not to advise that for clients generally.
Lenders will usually want to see three years worth of signed accounts to include SE income for mortgages but it depends on who you speak to and what kind of proof of future income you have. if you're already speaking to someone higher up than a manager you may be lucky if you have signed contracts for a couple more years work, but tbh it's doubtful anywhere will take it into account at the moment.
Sorry!

He does need to notify HMRC that he's got untaxed income. He will then be sent a tax return to complete. Who needs to complete a tax return

The income tax level is based on his current earnings. So if he makes £20k in his job and another £10k profit from the self-employment then he would be a basic rate taxpayer and pay 20% of the 10k (i.e. £2,000) as income tax. If his income from employment is (say) £50k and he makes another 10k through self-employment then that 10k would be taxed at 40% since your son is already a higher rate taxpayer.

He would also have to pay NI. For self-employed people you've got class 2 NI (£2.40 per week) and class 4 NI, which is calculated based on the self-employed earnings. The first £5,715 is NI free, after that he will have to pay it at relevant rates.

This is a very simplified example of what tax and NI liabilities he will have to deal with. There are extra rules and exceptions to almost everything, though so if he is making significant amounts of money (say more than 5k as that's when the NI liabilities would start) I would recommend talking to an accountant. Mainly because it is easy to overpay on NI in these circumstances if his total taxable income will be somewhere in the 50k region.

Yes, you do have to declare your additional earnings, but you dont have to necessarily register as SE to do that.

IShallWearMidnight
Why do you tend to not advise it? Is there a potential downside?

only because it keeps the two income streams separate for accouting purposes. Generally, also, the employed income is a fixed amount, and people don't want that to go down (to pay the SE tax). No actual downsides if that's how you want to do it.

Thanks IShallWearMidnight

thank you all for your posts.

Sorry to hijack the thread, but DH is looking into self employed as a second income (earnings would be minimal, maybe £2,000-£3,000 per year. I was just wondering how this works with declaring income got child tax credits purposes? We usually get our renewal pack around April time but won't know DH's income from self employed work until the following year, do you just estimate what it will be then give a definite figure when your tax return has been completed? TIA

got = for