Q: I have a full time job and want to set up a company as a sole trader. I do not want my employer to know that I am starting my own business. If I register my company as a sole trader will there be any change to the tax code or p60?
Oct 13 2010
Answered by: Clive Lewis Ask a question
Your employer doesn’t have to know about your new business.
If you start as a sole trader (an unincorporated business) you are taxed (income tax) on the profits you earn. You must notify HM Revenue & Customs (HMRC) within three months of starting the business. You will then have to complete a 'Self Employment' section of your annual tax return after the end of the tax year (5th April). You will need to prepare a set of accounts to complete the Self Employment Tax Return. Income tax on Self Employment is payable in two instalments in 31 January and 31 July.
If you form a limited company as a director of the company you will effectively become an employee of the company. As such HMRC will expect you to complete a form P46 (in the absence of a P45 because you haven’t left your employment). The P46 includes a question: is this your only or main employment? You must answer 'No'. 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 the limited company. Your personal allowance will stay with your main employment.
In most cases part time or second businesses are usually sole traders. I only mention the limited company option as your question mentioned the word 'company' although you also use the term 'sole trader'.
Finally, for changes to a tax code for your main employment, the employer should only receive the revised code without any details of how the code is made up. The employee should receive the detailed breakdown of the allowances. Consequently, there would be no reason for your employer to become aware of your business from the source of your tax code.
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