I am currently in a partnership, which is VAT registered. I intend to start another unrelated self-employed business. How do I manage this? Two separate tax returns? What about NI? How does this all work? There must be a way I can combine all of this into one personal return.
You have 3 months to notify HM Revenue and Customs (HMRC) of your new business. You can obtain a form CWF1 from the HMRC website or call the Self-employed Registration Helpline on 08459 15 45 15.
As you are in an existing business you will have been required to complete a Tax Return in your name as well as a partnership tax return showing the income, expenses and profits of the partnership.
The partnership tax return is only for calculating the taxable profits and allocating the share to each partner. Your liability to Income Tax and National Insurance Contributions (NIC) will be determined by your personal tax return.
For the new unrelated self-employed business you will also need to complete a Self Employed section of your personal tax return, again showing the income, expenses and profits this time for your self employed business.
The profits from the self-employed business will be added to your share of profits from the partnership as well as any other income you have such as interest on bank accounts to calculate your total taxable income.
Tax on your self employed business profits is payable in two instalments on 31 January and 31 July (as for the partnership) together with an adjustment of any balance owing the following 31 January. If your total taxable income exceeds £39,825 (2007/8 rates) you will be liable to tax at 40 per cent.
The basic National Insurance Contributions (NIC) is called Class 2 and for 2007/8 it is £2.20 per week usually paid by direct debit in 4 or 5 weekly instalments. But if your self employed earnings are less than £4,635 no Class 2 is payable. You are probably already paying Class 2 because of your partnership business. The additional NIC is called Class 4. On total taxable profits between £5,225 and £34,840 the Class 4 rate is 8 per cent and on profits above £34,840 it is 1 per cent.
So its one tax return but an additional Self Employed Section to complete.
You also need to consider the VAT implications of a second business. If it is a stand alone business and only you are the owner you will be covered by the usual considerations for mandatory registration for VAT once the turnover in the previous 12 months exceeds £64,000 (2007/8).
However if you and your partner are setting up a new business the VAT Office may regard the new business as an artificial separation and therefore part of the existing business and you would be compelled to charge VAT on sales from the outset. If you have any doubts you should either call the VAT Helpline (0845 010 9000) or a talk with your accountant.
See also: Cash for filing tax returns online?