Start of a new business
When you start up a new business, whether it be part-time or full-time, there are tax responsibilities that come with it. This can be pretty overwhelming if it is your first time so we are here to help! Hopefully our article is of use to you, but if you want a deeper discussion then get in touch with us today! Please click here and complete the form or email us at contact@atroaccountancy.co.uk and we will get back to you as soon as possible!
Firstly, if you are running the business part-time whilst still in full employment under a separate employer. It is best to speak to your current employer about any restrictions in allowing you to start your own business on the side.
Every employee in this country pays their tax and national insurance contributions via PAYE (Pay As You Earn). Your employer is responsible for calculating your taxes and NI contributions and deducting this off the income you receive. They will then pay these on your behalf including their own tax and NI responsibilities for all employees.
When you set up your business it is important that you notify HMRC immediately especially if you are in part-time employment. There will be a crossover between your current employment and your new business, so if you fail to register with HMRC you could receive fines. Which we want to avoid.
Taxes & National Insurance Contributions
Self-employment comes with different responsibilities than just being an employee, but this also means different freedoms. For example, an employee will pay tax and NI on each payslip, whereas in self-employment this can be the same or yearly. At the end of each tax year (5th of April) you will need to complete a ‘Self-Assessment’ which is a form to fill out for HMRC. Do not worry too much about deadlines as you get plenty of time to submit this. From this submission HMRC will calculate your tax and NI. If you have a good accountant, they can let you know how much you will owe well ahead of time.
Self-employed people pay different types of national insurance contributions. You will be responsible to pay ‘Class 2 National Insurance’ on your earnings. However, if your business has earned below the yearly threshold (2022/2023 tax year threshold £11,908) then you do not need to pay this. However, you may wish to make a contribution to preserve your state benefits.
If your income for the tax year exceeds the threshold then you will need to pay both ‘Class 2 National Insurance’ as well as ‘Class 4 National Insurance’ contributions. Class 2 is currently £3.15 per week (2022/2023), and Class 4 is dependent on how much profit you have earned over the threshold. This can be tricky to calculate, so get in touch with us and we can help you!
If you qualify for Class 4 then you will need to make payments twice per tax year. The dates to pay are 31st of January and 31st of July. It is good business practice to set aside 20-30% of your net income to cover the cost of your tax and NI bill.
Thanks for reading this post, we hope you were able to learn some useful information. If you ever need help with financial services such as your tax returns then we are available to help. Please click here and complete the form or email us at contact@atroaccountancy.co.uk and we will get back to you as soon as possible!