WD40 started this topic @ 14:18 on 04/01/2006
A couple of months ago I set up a new website that's earning me about £200 / month through affiliate advertising.
I also have a full time job where my employer sorts out my tax through PAYE (this salary means I am in the high tax (40%) band)
I am trying to sort out the best way to pay the tax due on my website income.
1) If I do a self assessment, will I have to pay 40% tax on this income?
2) What happens about national insurance?
3) Does my employer still sort out my full time tax and I just do the extra through self assessment?
4) Would a be better off setting my self up as a sole trader or limited company?
5) As I maintain the website at home, does this mean I am using my house for business use (will this effect my house insurance / mortgage?)
The more I look into this, the more complicated it becomes, especially considering the small amount of money concerned!
Thanks in advance.
RE: Income tax on website earnings
James Smith | 04/01/2006 02:37 PM
Its shouldn’t really be all that that complex if you keep proper records, it will only be a few extra lines on your return.
(1) Yes. I don’t know if its the way you have phrased it, but this isn’t optional! You must also register as self employed within 3 months of starting up. £100 fine for not doing so.
(2) You may pay a small additional amount weekly, plus some more via self assessment. This is capped as a higher rate tax payer to 1%. It is a bit fiddly.
(3) Yes
(4) To late for the past, for the future a limited company MAY be a good idea - its down to what your do in the future, and what you do with your income (ie spend or re-invest). For £200 a month its probably not worth the bother. If we where talking £500 or £1000 a month then it may be worth a look if you are retaining funds in the business.
(5) Generally it won’t affect things, but there may be restrictions on your policies, so check the small print. You can reclaim any costs that a business related in your tax return which will reduce your tax bill.
Hope that helps.
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: Income tax on website earnings
WD40 | 04/01/2006 03:13 PM
Hi James,
Thanks for the quick reply.
That 40% is going to be a killer - could I pay all the money into my personal pension to avoid paying the income tax? Or is this something you can only do with a limited company?
Thanks again
RE: Income tax on website earnings
James Smith | 06/01/2006 04:29 PM
Payments into your pension are deductible from your income bill, although you won’t see all of it directly on your tax return due to the way the relief is given - half of it is via an increase in your pension fund.
I should point out you only pay tax on your profits - i.e. income less business expenses, so you still get to keep 60% of your profits in your hands so payment shouldn’t be a problem unless you are spending the whole profit right now.
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
