Q: I work 16 hours a week on my own business but need to take on paid employment. I've been offered a part-time job which I can fit in around everything. I'm not sure how to go about this regarding tax returns or NI contributions.
Dec 15 2010
Answered by: Clive Lewis Ask a question
When you start your new employment your employer will ask you to complete a form P46. The P46 includes a question: is this your only or main source of income? You should answer 'No'. If you answer 'Yes' you will be taxed incorrectly and there will be a tax underpayment which when you are notified you will have to pay it.
What happens next depends upon the legal format of your own business - whether it is an unincorporated business (usually called a sole trader) or a limited company. If your business is a sole trader you are taxed (Income Tax) on the profits you earn.
If your business is a limited company you are likely to take profits out of the company as a combination of salary and dividend. So if it is a limited company you are likely to already have an employment as a director of that company. Any salary will be subject to tax and you will have received a code number (basically your personal allowance) to apply to that salary to calculate the tax payable. National Insurance Contributions (NIC) will also be deducted where you are above the earnings threshold of £97 per week.
You can decide which of the two sources of income you have you want your personal allowance set off against. In 2010/11 tax year this is £6,475 for taxpayers under 65 years old. You can continue to have the personal allowance set off against the profits or income from employment from your own business. This is likely to be the best course of action. In this case after completing the P46, HMRC will then issue a BR (Basic Rate) code which means you would pay tax at the standard rate (20 per cent) on the salary from your new employment. NIC will also apply on earnings over £97 per week. If you are already paying National Insurance Contributions, you can apply for a deferment so that you total NIC liability is calculated on you combined Employed and Self Employed income and a final liability determined after the end of the tax year. Whatever you decide, you must advise HMRC accordingly. This is a separate issue and does not affect the P46 completion
If you business is a sole trader you should already be completing a 'Self Employment' section of your annual Tax Return after the end of the tax year (5th April), using a set of accounts to complete this section of the Return. Income Tax on Self Employment is payable in two instalments in 31 January and 31 July.
Whether you have an income as a sole trade and the part time employment or two incomes from employment (one from your business limited company and one the part-time employment), after you compete your year end tax return you will receive a calculation from HMRC showing whether you have any further tax or NIC to pay as a result of the amalgamation of all your sources of income less any allowances you are entitled to. By combining your two sources of income you may be pushed above the threshold for the basic rate of Income Tax. If after your tax personal allowance has been deducted your total income exceeds £37,400 (which is taxed at 20 per cent), taxable income above that will be taxed at 40 per cent.
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