Q: I am employed and pay NI and tax. I have an option to earn an extra £1,000 monthly consulting for a Dubai-based BPO. How do I calculate tax on this second income?
Feb 10 2011
Answered by: Clive Lewis Ask a question
You do not mention where you are resident for tax purposes but I assume from your question you are living in the United Kingdom.
In that case any extra income will also be subject to UK taxation. If this is as self employed basis you will have three months to notify H M Revenue & Customs that you have started self employment in addition to having an income from employment.
As a sole trader you should expect to complete a 'Self Employment' section of your annual Tax Return after the end of the tax year (April 5th), using a set of accounts to complete this section of the Return. Income Tax on Self Employment is payable in two instalments on January 31st and July 31st. It is likely that your tax personal allowance has already be given against your employment income. So the self employment income will be taxed at your highest tax rate and the additional income may push you into a higher tax band (see next paragraph). Although, if you are self employed you are allowed to deduct relevant expenses such a computer costs, telephone, etc against the self employment income.
After you complete 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 (£6,475 in 2010/11 for people under age 65) 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.
If the income from Dubai is treated as employment and tax deducted, then it is possible that you can offset the Dubai tax against UK taxation.
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