Q: I work full time but additionally I want to run an online business. How is the tax I currently pay affected?
May 25 2011
Answered by: John Staniforth Ask a question
You have a choice on how to structure your new online business, a common way is to operate on a self employed basis.
Being self employed does not affect the tax on your employment income, however you will have to pay tax on your profits. Your profits are calculated by subtracting your total allowable expenditure from your total income. Your profits are then multiplied by the appropriate tax rate to arrive at the tax due. Tax rates increase as income goes up, so the rate to use will depend on your total income from all sources.
There are different classes of national insurance (NI) to consider. Class 1 is paid on employment income, while the self employed pay both Class 2 at a set amount per week (currently £2.40) and Class 4 based on profits. There are annual limits to ensure you do not pay NI twice. Where you are employed and self employed at the same time, and you expect to exceed the annual limit, you can apply to pay Class 2 and Class 4 NI at reduced rates.
When you become self employed, you should register with HM Revenue & Customs. Once you have registered, you should receive a tax return at the start of the tax year, to enable you to report your income and for the tax to be calculated.
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