Business

Earning extra cash? Don't fall foul of the taxman!

If you have a second job such as dog walking, and earning less than £1,000 (before any expenses are deducted), it may mean that you don’t need to report this income to HMRC or pay tax on it
Malachy McLernon

QUESTION: Due to the on-going cost of living crisis I am considering taking on a second job or starting up my own small business to boost my income. I currently pay all my tax through my current job. What are the tax implications if I earn money outside of my current employment?

ANSWER: If you have more than one job, it's important to make sure you are paying the right amount of tax. Problems can arise because the PAYE system does not easily cater for multiple jobs. You only have one tax free personal allowance per tax year and the number of jobs you have does not affect this. In 2022/23, the personal allowance is £12,570.

The PAYE system is designed to treat one job as your main 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). This means that you should see a code number of 1257L (reflecting a tax free personal allowance of £12,570 for the tax year 2022/23 with the last digit removed and a letter added) against one job and a BR (basic rate) code against the others.

Starting a side hustle – tutoring, baby-sitting, dog walking, ironing, blogger or online influencer and earning less than £1,000 (before any expenses are deducted) from this type of activity - may mean that you don't need to report this income to HMRC or pay tax on it, depending on your other circumstances.

The trading allowance 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 from these types of activities, then you may be able to use the trading and miscellaneous income allowance. However, you will still need to report your income:

• If what you are doing is like running a business, you should register for self- assessment and complete a tax return to declare your income and expenses like any other self-employed individual. This is the case even if it doesn't really feel like work and even if you only do it part time!

• If it is more of a hobby, then any profit you make will still be taxable but as ‘miscellaneous' income instead of self-employed income. In this case you still need to tell HMRC about the income. However, HMRC may be able to collect any tax owed on it by adjusting your PAYE tax code instead.

If you have a successful social media presence you might receive gifts or payments in kind for promotion, as well as or instead of cash. This can be anything from a new mobile phone to endorse or a pair of shoes to review. If it's a payment in kind or gift in exchange for promotion (even if you receive it out of the blue), it's probably considered a taxable amount and you should include the value in your figures when you are working out your income. The value will usually be the amount of money you could sell it for.

If you are selling things you no longer want – whether in a car boot sale, on eBay, on local online and offline marketplaces – in most cases there shouldn't be any tax consequences to worry about. This also applies if you are recycling old mobile phones/laptops/other unused devices etc. through trade-in sites.

But if you regularly sell things you have bought or made specifically to sell on (vintage clothes or arts and crafts for example), HMRC may consider that you are trading. In this case the trading allowance may help you.

Finally, it is important to remember that earning extra money from the type of activities mentioned might affect any benefits you receive. If you receive any means-tested benefits or benefits that can be affected by earnings, you should contact the relevant government department.

:: Malachy McLernon (m.mclernon@fpmaab.com) is partner at FPM Accountants Ltd (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

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