Business Tax for Part-Time Start-Ups

3d tax pie chart

When setting up a business for the first time, many people choose to stay in their full-time job as a safety net in this volatile economy. The increase in online businesses has also meant that people can run a business from their home as a part-time venture. But what are the tax implications of this? Is the tax deducted from the part-time business or the full-time profession? How much should be paid?

Laurence Collins, Managing Director of online accountancy service Magic Accounts, says, “Part-time business tax is an area that trips up many people setting up on their own for the first time. They can end up paying much more than is necessary if they do not fully understand the system. For this reason, it is vital for all start-ups to be fully aware of the tax implications of running a business part-time.”

Initially, new businesses have three months from the date of commencement to notify the relevant authorities that they have started their own organisation. From this point, there is a legal obligation to maintain accurate financial records regarding both business and personal expenses. The two taxable incomes are then entirely separate from one another. Pay As You Earn (PAYE) and National Insurance Contributions (NIC) are deducted from the full-time position, but Income Tax and NIC on any profits earned from a start-up is paid in two instalments on 31st January and 31st July.

In the first year of trading after starting a business, a Self-Employment Tax Return is required. If turnover for the business is lower than £15,000, only the figures for turnover, expenses and profits are required. However, if the turnover is greater than £15,000, more detailed balance sheets are required; for businesses which have delivered great turnover in their first year, a part-time accountancy service might be beneficial to help with this element of the tax process. All profits for the period up to the 5th April after the business commenced will be subject to NIC and Income Tax. These payments are then required on the specified dates in January and July; it is recommended that businesses set aside a portion of their profits every month into a separate bank account in order to meet these payments when they are due, to prevent cash flow issues when it comes to the payment deadline.

The NIC for a part-time business depends on the self-employed earnings of the individual. If earnings are more than £5,725, the NIC is £2.70 per week as of 2013. If profits are between £7,755 and £41,450, 9% NIC will be required, whilst any earnings above the £41,450 threshold will be subject to 2% NIC.