QUESTION: Due to the current cost of living crisis, I am considering taking a second job or starting my own small business to supplement my income. I currently pay all my taxes through my current job. What are the tax implications if I earn money outside of my current job?

ANSWER: If you have more than one job, it’s important to make sure you pay the right amount of tax. Problems can arise because the PAYE system does not easily support multiple jobs. You only have one non-taxable personal allowance per tax year and the number of jobs you have has no bearing on this. In 2022/23 the personal allowance is £12,570.

The PAYE system is designed to treat one job as your main job (against which your personal allowance will be paid to you in full) and other jobs as secondary (which are taxed at the base rate of 20 percent). This means you should see a code number of 1257L (reflecting a non-taxable personal allowance of £12,570 for the 2022/23 tax year with the last digit removed and a letter added) against a job and a BR code (base rate) against the others.

Starting a side hustle – tutoring, babysitting, dog walking, ironing, blogging or online influencer and earning less than £1,000 (before expenses) from that type of hustle – may mean you don’t you don’t need to report the income to HMRC or pay tax on it, depending on your other circumstances.

The Trading Allowance exempts trading, casual and/or miscellaneous income up to £1,000 per tax year from income tax and National Insurance contributions. The allowance can be used against any business, occasional or miscellaneous income.

If you earn more than £1,000 from these types of activities, you may be able to use the Business and Miscellaneous Income Allowance. However, you will still need to declare your income:

• If what you do is like running a business, you must register for self-assessment and file a tax return to report your income and expenses like any other self-employed person. This is the case even if it doesn’t really look like work and even if you only do it part-time!

• If it’s more of a hobby, any profit you make will still be taxable, but as “miscellaneous” income instead of self-employment income. In this case, you must still inform HMRC of the income. However, HMRC may be able to collect any tax due by adjusting your PAYE tax code instead.

If you have a successful social media presence, you might receive gifts or in-kind payments for promotion, as well as or in lieu of cash. It could be anything from a new cell phone to approve or a pair of shoes to review. If it is a payment in kind or a gift in exchange for a promotion (even if you receive it unexpectedly), it is probably considered a taxable amount and you should include the value in your numbers when calculating your income. The value will usually be the amount of money you could sell it for.

If you sell things you no longer want – whether in a car boot sale, on eBay, in local online and offline marketplaces – in most cases there shouldn’t be any tax consequences. to fear. This also applies if you are recycling old cell phones/laptops/other unused devices etc. via recovery sites.

But if you regularly sell things that you bought or made specifically for resale (vintage clothing or arts and crafts for example), HMRC may consider you to be trading. In this case, the trading allowance can help you.

Finally, it is important to remember that earning extra money from the type of activities mentioned can affect the benefits you receive. If you are receiving means-tested benefits or benefits that may be affected by income, you should contact the relevant government department.

:: Malachy McLernon ([email protected]) is a partner at FPM Accountants Ltd (www.fpmaab.com). Advice in this column is specific to the facts surrounding the question being asked. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss resulting from reliance on the answers.

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