I work full time for an employer. One of my hobbies is dance, and I've become reasonably good at it, got a teacher qualification and will be teaching regularly soon. Obviously I want to be squeaky clean and to declare my earnings. Would anyone have any advice on what I need to do please?
Presume I need to somehow set up my own company..
..record all my earnings..
and then maybe get an accountant to sort it at the end of the year?!? Sorry I'm completely clueless about this sort of stuff, having worked for someone else all my life.
Company not strictly needed (depends on income level from these earnings). E.g. if you earn few thousand then the way forward would be to declare on your annual self assessment. That will drive any tax owed.
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I doubt setting up a company will be required or anything like that, but you will need to be registered as self employed. The most important thing is to tell Mr Taxman literally the moment you get some self employed income. He likes that.
Getting an accountant for the first year isn't a bad idea, as then you'll have a model to follow for all subsequent years. Yes record every job done, and every single expense related to it, and the accountant will be able to tell you what of your expenses are deductible
Last edited by Der Amf; 13th March 2018 at 17:56.
Many thanks. It sounds reasonably straight forward.
So there isn't a threshold of what you can earn as secondary income, ie, outside of the main employee... - any additional money will be taxed the same as I am taxed at the moment...?
Correct. My wife got her Yoga teaching qualification a few years ago and taught one class a week for the fun of it, she only earned £30 a week and informed HMRC and had to do a self assessment, they just adjusted her tax. When she stopped she told them and they adjusted it back again. Easy peasy.Originally Posted by PJdB
Cheers..
Jase
Nope. You will be taxed on the highest level of tax that you currently pay for all this extra income. HMRC might offer to take it via your tax code but I'd resist that and pay the annual bill.
Register as self employed unless you are giving the classes for somebody else who is in effect a second employer.
If self employed keep a record.
Dates times earnings per session or per pupil.
Don't forget to think about your expenses.
Office (records, invoicing office supplies etc.)
Insurance
Hire of premises
Travel costs to and from
Telephone (in connection with this work
Make a record of these
You can fill in the SE section of HMRC's return yourself. Best to do it the detailed way first couple of years IMHO.
There is a ton of info on HMRC web site on how to be SE.
If this becomes a significant income stream HMRC will start to ask for payments on account after your first year. These are taken 6 months apart.
TIP - make your dance business year coincide with the tax year. It's simpler.
Very good advice given to keep comprehensive records of income, expenses, mileage if you use your own vehicle. You should be able to find a decent accountant to help you for a modest fee. Personal recommendation is best if you ask friends/colleagues/ contacts.
Depending on your earnings and administration capabilities, it may pay you to form a limited company and pay yourself in dividends only. No tax on the first £2k of dividends, I think it’s 7.5% after that up to a figure of about £46k (combined with your other salary) and no NI payments on dividends. It goes up once you exceed that figure. Obviously, check those facts and figures out first!
You might want to also consider an Ltd if there is any possibility of potential litigation against you as you would be much more protected as an Ltd. Also as mentioned if your earnings are high you may want to consider an Ltd to provide more options on when you get paid although you could always make additional pension contributions with the dance earnings to offset the additional tax if otherwise don’t need an Ltd.
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Depending on which tax bracket it puts you in and how much it is - you might want to look at sticking a lot of it into your pension (and reduce your tax).
Amazing advice, - this is superb. Thanks everyone - hugely appreciate.
Actually I am discussing this at the moment. It might be that I am just a paid teacher, - for more than one venue. Is there any pros and cons to be self-employed as opposed to registering a second employer.
I guess I could justify being either...
Once you're self employed your options for being hired will massively increase, as plenty of people wanting to book you won't want the hassle of making you an employee.
The hassle of submitting the annual self assessment is minimal.
Whist the status issue, employed or self employed, is subjective you don't get to choose as such, HMRC do. It's worthwhile understanding the key factors in that decision as there is scope to agree terms of engagement which make you one or the other even if they rarely have any impact in practice. In short I'd say self employment provides greater risk, greater potential gains and greater control. Employment largely the opposite. In terms of tax expenses, travelling to and from the locations you do the job will be at your own expense although travel between locations is allowable. If you're self employed and based from home then travel to all locations would be allowable. Minor differences like that....
In terms of records for self employment, nothing fancy needed, see HMRC website, but get into the habit of keeping good records, buy a book for the purpose if it will help. Excel or similar is ideal to update a spreadsheet once a week but there are numerous cheap commercial packages so if you know your accountant then check with them which they prefer. Not only do good records give you peace of mind but it means any accountancy fee would be minimal as you are not paying them to order/organise your records.
Last edited by deepreddave; 14th March 2018 at 09:37.
If it's going to be a trivial income at first or if you are just "testing the water" then work for somebody else. They have all the hassle of insuring their business finding venues etc. You'll be paid PAYE by them with an appropriate deduction for TAX and NI. It's their problem to sort all of that out with HMRC. All you need to do is keep pay slips and fill in your annual return to HMRC. If they pay you mileage then make sure it's at the approved HMRC rate or below.
If it looks like it could become an alternative career you can set up on your own later.
If you are going to jump in with more than one school then you'll need to be SA form the start and have a contract with each school. Make sure the liability for pupil injury is with each school in the contracts. You'll need a lawyer to look the contract(s) over. Otherwise you'll need professional indemnity insurance.
While there's terms like 'self employed' being used what you actually need to do is decide what your trading mechanism is going to be. This is pretty much limited to Sole Trader, Limited Company (personal services company) or Partnership. The decision of which to use should be driven by your expected turnover & the requirement of your client base. The pros & cons go something like this:
Sole Trader:
Slightly easier in terms of accounting. No PAYE etc to administer
No IR35 issues
Flexibility in taking money from the business
Some clients may not use ST (it exposes them more if HMRC come sniffing)
You are the business entity & all your assets are at risk
Limited Company
More complex to set up & accountancy costs may be higher
IR35 may be an issue
Potential to reduce tax liability by use of salary/dividends
Limited personal liability if if goes wrong
Partnership
Potential to reduce tax liability (often set up with wife who does admin etc)
IR35 may be an issue
I suspect that you are not going to making millions at this so I very much doubt it's worth looking at anything other than operating as a Sole Trader. The extra costs & complexity of operating as a Ltd Co simply aren't worth it as long as your clients are happy to take you on as a ST. On that point it would be very helpful if you could have multiple clients as it makes it look much more as if you are in business on your own account.
Operating as a ST is actually very easy if you get organised & while you can look at accountancy packages you easily do it in Excel. For simplicity I'd suggest thinking about a separate bank account (PJdb Trading As Twinkletoes) & a credit card you use only for business purchases. It saves a huge amount of time if you don't have to keep picking out entries from your personal accounts to enter into your business books.
Have a look in the app stores to see if anyone has developed an app for dance teachers - they have them for physical trainers.
Think about getting another mobile phone number or SIM card (& maybe a dual sim phone) so you can control when you are available. Charge this as an expense just like anything & everything else you need for the business. New pair of shoes? Stick it on the business card & claim for them. Record your business mileage - you can claim the business percentage of petrol used & running costs. This means logging every trip.
You'll definately need insurance (Public Liability at least) & check your car insurance covers you for business use.
There's a shed load of information here but most of it it overkill for your purposes:
https://www.contractoruk.com/
Find an accountant who deals with small companies/traders & at least use him to guide you in setting up & maybe your first tax return. Get him to explain the implications of the upcomng changes due to the Making Tax Digital programme HMRC are introducing. Reducing tax is a whole different issue & he should be able to help with that.
If you are going to be a Sole Trader, and I agree that is by far the simplest way, then you really don't need an accountant to bleed money off of you.
Everything you need to know tax wise can be found out from HMRC web site. You can read this info just as well as any accountant can.
The only other consideration is insurance but that will depend if you are giving the lesson on behalf of a third party who is contracting you to do it or if you are giving the lesson in your own right.
BTW don't forget using your own car for business purposes like driving to multiple venues will mean you need business use insurance.
The wife does it on self assessment as she is a senior civil servant but also teaches yoga, step , fitsteps and clubbercise amongst other things . With her job she has to be squeeky clean and does declare stuff and she did free lance until recently at other Gyms atc but cannot be bothered as she can earn a lot more doing her own classes .
Only advice i would add is to try and leave the extra income alone in year one, just so you know how much of it is yours. I spent literally every penny the first year I was self employed and found myself in a serious hole at the end of the financial year. I wish I had been able to just leave the money in a separate account and at the end of the year pay what was due and THEN enjoy the profit.
I am having discussions, but it's possible that I may open up a venue on my own. I will need to give it a name... - does that mean that I have to register a company? Or can I just put it through my name (trading as) ?
Car insurance for business use didn't even occur to me.
Wow - so much information.. I need to internalise it all.. I am sure it's much simple than I'm imagining once I get to grips with it... blimey.
THANK-YOU ALL very much.... I will keep refering back to this thread as a hugely valuable resource as I go. Amazing help on here - such an amazing forum.
It might depend on what you mean by "open up a venue". Do you mean hire a studio by the hour/day or take on a lease on premises & run it 24/7? If it's the latter I suspect a Limited Company might be better, although take advice.
If you are a ST you don't have to trade under your own name, you can have a trading name, say Twinkletoes Dance Academy. It's just that on certain documents (such as invoices) your name has to appear somewhere. An accountant can advise on the legal requirements.
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