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Tax returns - some questions
spikey eye bw
How does tax work in this situation:

I have a regular job and a normal income from it - an annual salary taxed as PAYE.
I do some extra work that brings in a modest income but isn't anything like a primary job and the income is irregular. Let's say it's polishing housebricks on an ad-hoc basis.

I believe I then need to declare this extra income on a tax return.

However, if polishing house bricks were a regular job, I understand I could claim tax exemptions on things like my phone which is needed for contacting potential clients who need bricks polished, and my polishing kit, which is clearly essential. Effectively I'd be declaring myself to be a housebrick polisher.

If housebrick polishing isn't my full time or primary job, though, can I still claim those costs? And how much is reasonable before you get into MP-duckhouse territory? Can I claim on anything peripherally related to the polishing, even if I'd have bought it anyway? What if the items far outweigh the income generated by brick polishing?

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My understanding is that you can claim anything directly related to the brick polishing, and yes, the costs can easily outweigh the income. Consider someone starting a jewelry business; they have to spend lots of money just building up an inventory, and it may be YEARS before they start selling more pieces than they are spending on new materials. If they start going to craft fairs and such, the travel costs (including food, etc.) will also build up.

Indirect... well, it depends. As I note above, you can certainly claim food expenses on trips which are for your work.

Note that I am not a tax professional or lawyer. If you want AUTHORITATIVE answers, you really need to ask one of them.

Edited at 2013-11-20 11:47 am (UTC)

Your advice about food expenses on work trips is invalid in the UK (HMRCs reasoning is that you'd have to eat something even if you stayed home). Buying a client a meal, however, falls under "hospitality" which is a sub-category of marketing, and as long as it doesn't violate the Bribery Act (2010) you can probably claim it.

I was always able to claim for my food when working away from my usual place of employment, and the umbrella company was very by-the-book on this sort of thing.

What national tax regime do you pay income tax in? If in the UK (reference to PAYE) then you need to contact HMRC and fill out a self-assessment return.

There is (or used to be) a threshold of something like £1000 for "hobby earnings" below which you could just declare a round lump sum of income with little detailed accounting. Above that level you can claim stuff like a chunk of your phone bill and all of your brick polishing kit and office overheads as business expenses (which come off your profit, which is what you pay tax on), but you may also have to pay tax. You may also have to register for National Insurance payments on a self-employed schedule.

If you're talking about writing, the Society of Authors has bags of useful advice/pamphlets on their website.

Hmm, I seem to have posted a new thread rather than a reply to this comment - please see below for response. (Thanks for your time, btw.)

Thanks, that's helpful. I am talking UK earnings. If my paye regular job already takes National Insurance then why would I need to register as self-employed for that? Is NI proportional so there'd be extra to pay if my brick polishing was doing well?

Yes, you need to pay NI (class 2) as self-employed even if you have another job, unless your income is under a certain threshold where you can claim the small earnings exemption. Have to fill in a form for that. Class 4 can be due if you've made enough.

You need to register as self-employed and they set up direct debits for the NI.

NI is charged per job, providing you are making over the threshold.

Have a look at http://loisdesigns.blogspot.co.uk/p/tscb-series.html - that's aimed towards small craft businesses, because we have all sorts of complications. If you're not craft, it's probably simpler! No stock-taking :)

If this is for 2012/2013 tax year, tax return due in Jan, then you need to use accruals basis accounting: ie you account for supplies you have bought when you have sold the things made with them. So you can't claim for everything the year you bought it. It's going to change after that so you can choose to use cash basis accounting: ie you account for things when you buy them. Counts for subscriptions too, so you apportion the cost into when you actually receive the magazine, and yearly website charges etc have to be split into financial years.

If the income is royalties that's different so you'd need to look up writerly places for advice.

Claiming costs: for things like phones and internet that also have a personal use factor, you have to base it on what proportion is business use and only claim for that. Making a loss: you can choose to carry it forward to next year against future profits or claim back tax you paid in your PAYE job, so get a rebate. If working from home you can calculate what proportion of everything you are using for business, or there's a basic weekly amount you can use instead that covers everything for 'use of home as office' - forget if it is £3 or £4 this year.

(Not an accountant, but I do my tax return for my craft business while also being employed full-time PAYE).

There *is* also the Casual Earnings box on the tax return: scroll down a bit past halfway here for something on it, but you need to work out whether that's appropriate or whether HMRC will think you are actually self-employed. http://www.etsy.com/forums_thread.php?page=9&thread_id=6710731

I believe that what you're talking about is a sole tradership, and yes, you can offset expenses against it, even if it is not currently profitable. But I think you should check with somebody who knows more.

Note that if you are self-employed, HMRC will tend to be fairly sharp about what they'll allow against tax - the test is whether the expense is "wholly and necessarily" related to your house-brick polishing. If you were working for a limited company (even if it was only Max's House Brick Polishing Ltd, employees: 1) then you can push the expenses on to the company, and typically claim rather more.

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