Earn an Extra Income When Self-Employed

By: Chris Nickson - Updated: 13 Dec 2010 | *Discuss

 

Running your own business can be a great way to generate extra income, and as long as it takes off, it can remain a constant provider of money - even past retirement age, since there's no law saying you have to stop working for yourself at 65 - unless you want to, of course.

However, at times you could be excused for believing that the government makes it as difficult as possible for those who want to show a little initiative and become entrepreneurs. There are plenty of legal twists and turns necessary when you start your own business.

Registering And Taxes

The first thing you have to do as a self-employed person (and this applies even if it's just a side business and you keep your main job) is register as self-employed with HM Revenue and Customs. This is easy enough to do, but it must be done within three months of starting up, or you could face a penalty.

It all becomes more complicated when you get into the area of taxes. You have to fill out what's called the self-assessment tax form regarding income from your business. Keep all receipts pertaining to your business, since many, if not all, expenditures related to it can be deducted, lowering the amount you'll owe.

It's a long, complex form that requires time to complete properly; if you're not sure, it's probably best to consult an accountant. If you have it filled out by the end of September, you can return it to HM Revenue, which will calculate how much you owe, or you can do the arithmetic yourself before the end of January.

Whichever method is used, the amount due has to be paid by January 31, or you'll face additional penalties, which can become quite punitive.

VAT

VAT, or Value Added Tax, can be a nightmare for small business owners. If your business has a turnover of more than £58,000 a year (unlikely if you're just running it part time in addition to have a full-time job) has to register for VAT.

That's not to say you can't register if the turnover is less, but be prepared for a mountain of paperwork. Of course, depending on the type of business, you may well have to register anyway.

Additionally, if most of your customers are registered for VAT, there can be an advantage in registering your business, even if it's small, since you'll be able to claim back the amount you pay in VAT for business purchases.

National Insurance

If you run a small business with yourself as the only employee, you'll need to play a Class 2 National Insurance contribution, which is done quarterly, either through a bill or by direct debit. Thankfully, it's currently quite small.

If you take a dividend from the company, there's no National Insurance to pay on that, as it only applies to salaries. Remember, though, that if you employ others in your company, you'll need to take care of all the paperwork regarding tax and National Insurance for them, and make all the appropriate deposits, which can be very time-consuming and frustrating. Sometimes it can be better to remain very small indeed!

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