PEOPLE have only just realized that the hustle next to them can bring them an unexpected bill.
Many households have felt short of cash and are looking for ways to increase their bank balances.
The good news is that there are many simple ways to earn extra income – but you need to know the rules.
Stephen Moor, head of employment at law firm Ashfords, said some people may not know they may owe taxpayers money.
“Be careful if you’re earning extra income, as this can be taxable,” he said.
“Part-time employment may be considered taxable transaction income, which may include the provision of services or the sale of products.”
When you’re hired, the company you work for collects tax on your earnings and pays HMRC, so you don’t have to.
But anyone making extra money, such as from selling online or walking the dog, may have to do it themselves.
If you earn more than £1,000 a year, you will have to pay tax on your income.
Stephen adds: “You need to apply for a self-assessment at HMRC to make sure you’re paying the right amount of tax.
“The tax rates that apply and the amount of tax you pay will depend on your income.”
If you don’t file a tax return, you may receive an unexpected bill from HMRC that then asks you to pay the tax you owe – plus additional fees.
“If you file your tax return late, you could be fined,” says Stephen.
You may also be penalized for not accounting for the full amount of tax you owe.
“The penalty will depend on why you didn’t calculate the correct amount of tax, such as whether it was intentional or not.”
There is a minimum fee of £100 if you file your tax return late. There are also other daily fees if you leave it on too long, which can go up to £900.
If you are six months late, you will be fined an additional £300 or 5% of the amount you owe – whichever is higher.
And after 12 months, another £300 or 5% fine will apply. Interest on unpaid balances is also added to this amount.
In the end, you could end up paying extra fees of up to thousands of pounds.
When do I tell the taxpayer how much I earn from my part-time job?
The last day to file your tax return is January 31 of each year if you file your tax return online.
The information you are providing is for the previous tax year.
So you need to file a tax return for the year to April 5, 2022 by January 31, 2023.
If you’d like to complete your tax return on paper, an earlier date is October 31.
You also need to register with HMRC to be able to file your tax return online or on paper if you haven’t done so before.
How to declare tax
If you haven’t signed up for an account, you should sign up now as it can take some time.
To apply for a self-assessment, visit GOV.UK website and complete the identification process.
You will then receive an activation code in the mail. This process can take 10 days in the UK or 21 days if you are overseas.
When the code arrives, you need to activate the account within 28 days, otherwise the code will expire and you need to request another one.
Once you are registered, you will need to gather all the necessary documents and information to be able to complete your tax return.
This includes your 10-digit Unique Taxpayer Reference Number (UTR) and your National Insurance number.
If you can’t find your UTR, you can Request a new one This.
Once you’ve done this, you’ll be able to log in to complete your tax return online.
You can also submit by paper but the deadline for that is fast approaching October 31st.
If you need help with your return, visit GOV.UK website or call the helpline on 0300 200 3310.
There are HMRC instructions and guidance notes online, but if you get stuck, you can consult an accountant or tax advisor, but you will have to pay for their services.
How much tax will I have to pay?
The amount of tax you pay on this amount will depend on your total income.
In addition to the £1,000 trading allowance, you also receive a personal tax-free allowance.
In the current tax year – which runs from 6 April 2023 to 5 April 2024 – this is £12,570.
On income between £12,570 and £50,270, you pay a basic income tax rate of 20%.
Money you earn £50,271 or more is taxed at 40%.
The additional income tax rate, which applies to income over £150,000, is 45%.
Anyone earning more than £100,000 does not receive any tax-free personal allowance – they will have to pay income tax on everything they earn.
Do you have a money problem that needs sorting? Get in touch by emailing firstname.lastname@example.org