UK Tax question

[coco28]

The company I work for insist on knowing about any outside activities we participate in, with regard to income. I don't want to disclose my online money making to them, but obviously I need to pay tax on money earned online.

I was wondering if any warriors could suggest a way where I could pay tax on my online earnings, but without my employer finding out.

I think the most tax efficient way (in the UK) for a person making money online would be to operate as a sole trader. However, this would require me to register as self employed, which I imagine would flag my NI number in such a way that my employer's payroll dept would find out.

Please note, I am not looking to avoid paying tax (we do need to keep our lovely MP's in the style they have become accustomed to...), just to avoid my employer finding out I have another income.

Any suggestions would be much appreciated...

[triosolutions]

you can use your online business in your wife name or contact Accountant if you need to keep it on your name.

[Nigel Greaves]

If you are self employed as a sole trader you would be paying class 2 and class 4 NI contributions which I doubt would show on your payroll details as your employers are concerned with class 1 NI primary contributions. That isn't professional advice though!

You are probably best giving HM Custom and Revenue a ring on 0845 915 4655

Nigel

[Adrian Cooper]

Originally Posted by coco28

The company I work for insist on knowing about any outside activities we participate in, with regard to income. I don't want to disclose my online money making to them, but obviously I need to pay tax on money earned online.

I was wondering if any warriors could suggest a way where I could pay tax on my online earnings, but without my employer finding out.

I think the most tax efficient way (in the UK) for a person making money online would be to operate as a sole trader. However, this would require me to register as self employed, which I imagine would flag my NI number in such a way that my employer's payroll dept would find out.

Please note, I am not looking to avoid paying tax (we do need to keep our lovely MP's in the style they have become accustomed to...), just to avoid my employer finding out I have another income.

Any suggestions would be much appreciated...

Your current employer has no rights to that information. Why would they want it anyway? Sounds suspicious.

Anyway, the easiest way around this is to have a limited company, either in the UK or offshore.

[Richard Tunnah]

I think you need to talk to an accountant TBH. There are ways that will hide your 'extra' income from your present employers like forming a company but this could incur a reasonable amount of costs.

Rich

[TelegramSam]

Originally Posted by triosolutions

you can use your online business in your wife name or contact Accountant if you need to keep it on your name.

Terrible tax advice.

Originally Posted by apc01

Your current employer has no rights to that information. Why would they want it anyway? Sounds suspicious.

Anyway, the easiest way around this is to have a limited company, either in the UK or offshore.

Agreed. It is none of their business, unless you are an mp, work for the government or need to legally publically disclose income. If it's just a job, tell them to whistle.

Originally Posted by Richard Tunnah

I think you need to talk to an accountant TBH. There are ways that will hide your 'extra' income from your present employers like forming a company but this could incur a reasonable amount of costs.

Rich

Do seek pro advice.

If you are serious about your internet income and the possibilities of it increasing, a company is the best. Especially if you already have a job. You can leave some income in the company and not end up paying higher rate taxes etc, as you already have a job.

Self employed is ok, but it depends on what you do and whether you need limited liability exposure that a company gives you.

If self employed, you need to contact the tax office and they will send you a few forms.

Your income and expenses go onto it as well as your job salary etc, once a year and you will get a bill to pay for the extra tax.

In fact you don't even need tobe trated as self employed if you are just making a bit of extra income. It can just go on the tax return as other income and you will be charged tax on that.

Self employed is better if you have valid business expenses you wish to claim against the internet income etc.

A Company is best if you can leave some income in it, if you have any danger of being sued, or if you have some bigger plan etc.

None of this needs to be told to an employer apart from my earlier comments. Certainly not income levels in most cases. You may need to mention you have a company if you set one up. But not how much you make.

Initially, go and see a high street chartered accountant. Usually the first into meeting, half an hour or so, is free anyway. They will tell you what is most likely the best once they see some numbers etc.

This isn't tax advice from me to you, just some general ideas for you to look into. Let's just say I know what I am talking about here.

Sam

[monitorit]

wht you do is tell your employed your situation (the truth). What they need to know this for is for you to decide were you would like your allownces as you are allowed to make i think £106 per week before paying tax. If you want these on your self employment then you would pay a straight 20% on you normal wages.I suggest you take your £5000+ allowance on your wages and pay 20% on your normal internet salary however if your making over i think 40k then you will be paying 40% so make sure your employers are in the loop as you make pay the tax man short leaving you a massive bill in the next financial year.

[coco28]

Originally Posted by TelegramSam

Terrible tax advice.



Agreed. It is none of their business, unless you are an mp, work for the government or need to legally publically disclose income. If it's just a job, tell them to whistle.



Sam

Thanks, you are right it is none of their business. Unfortunately its part of my employment contract to disclose, although I am not in any of the groups you mention. If I was an MP, I wouldn't need to follow the rules anyway, would I? [sarcastic tone]

I think you are right about forming a company. There would be some expenses in setting this up, but like you say, if I am serious about my online income...

Thank you for responding with your good suggestions, my criteria for a tax model is that it must be undetectable by my present company, and I think forming a plc is the best way to go...

Thanks to all who responded!

[Frank Donovan]

Hi coco

Originally Posted by coco28

..and I think forming a plc is the best way to go...

That's admirable ambition, but maybe you should start with a limited company?



Frank

[TelegramSam]

Hi coco,

Thanks for the thanks. Glad to help if I can.

By the way, it would be a Limited Company (Ltd) not a plc that you need to start.

(plc - public limited company, and is not what you need right now.)

An accountant would probably charge you about £300 to set up the company and help you fill out the paperwork.

If you have the money, get them to set it up and also have a chat with them.

You could do it yourself for as little as £60 or go a step further and do most of it yourself for about £110.

Then open a bank account once the company has been formed, put your income in there and expenses etc and away you go.

It does cost you more, but if you keep decent records and keep things simple, then your year end accounts will be straightforward.

Good luck,
Sam

Edit - Frank, you beat me to it re the plc ;-)

[coco28]

Ha ha. Woops, I meant plc = private limited company, and not public limited company, as possibly the UK tax authorities might see it as...

[SarahMcHarry]

If most of your online income is coming from USA then form a Delaware company rather than a UK Ltd company.

But if you are earning enough online for this to be an issue, why would you want to tell your employer what you are doing? They might soon be your ex-employer in which case it's none of their business.

I would keep my head down, prevaricate for as long as possible and aim for the exit door...

Sarah

[Mubarak Waseem]

(we do need to keep our lovely MP's in the style they have become accustomed to...)

I'd take 60 grand for a moat to keep out the pikeys any day

[xiaophil]

Originally Posted by TelegramSam

Terrible tax advice.

Agreed. It is none of their business, unless you are an mp, work for the government or need to legally publically disclose income. If it's just a job, tell them to whistle.

The advice to declare internet earnings under your wife's name may not be so terrible if she isn't using her personal allowance.

I agree that it is none of their business and the fact that they had to write it into your employment contract indicates they have no legal right to that information otherwise. It's straight out snooping and may even be a violation of what remains of privacy rights in your country.

A good accountant will be happy to have a brief chat about your situation for free and without obligation. I would actually recommend going with one of the larger firms instead of your local shop as they are more likely to have proper systems and procedures in place instead of relying on the memory of the boss.

I tried a few after forming my UK based company and believe me it makes a huge difference to your night's sleep when you know they are on top of things.

Be prepared to pay up to and over £100+ per month in order for them to handle the torrent of tax law, red tape and paperwork required to run even a minimal operation with one employee (you) in the UK.

Best of luck,

[Jason Johns]

Hi there,

If most of your income is in dollars, what are the benefits to me as a non USA resident to incorporating a Delaware company? I've heard that it is a good state to do this in, but was wondering if someone can give some more information on the benefits?

Thanks in advance

Jason

[Pedroskovic]

I would have thought that HMRC are not allowed to disclose your income to anyone - including your employer. Data Protection Laws etc. (Albeit that they will probably leave your details on a USB drive on a train!) Your tax affairs are between you and the tax office, not you, the atax office AND your employer!

Also, just because there is a clause in your contract does not necessarily mean that it is a 'fair term' i.e. it may be an 'unfair term' and thus not be legally enforceable. If they sack you when they find out you are making a second income online, you could sue them for unfair dismissal (upto £50k) - just NEVER do any work on their equipment or internet connections!

I took some advice from Business Link the other day and for what it's worth; set up a limited company and don't pay yourself anything until you have built up a decent war chest. Then pay yourself minimum wage and take all other profits in dividends (thus avoiding NI contributions). Include your wife as a director and pay her too (up to taxable allowance) to maximise income as a family from the business but make sure she does actually do some work - maybe massage your shoulders : )

DO get professional advice (I'd suggest a Business Link appointment to start with) and DO talk to the tax office to put your mind at rest.

Cheers

Pedro

[TelegramSam]

Originally Posted by xiaophil

The advice to declare internet earnings under your wife's name may not be so terrible if she isn't using her personal allowance.

Wife, kids, aunts, uncles, long lost relatives, dead grandparents...it's all been tried before.

If you really want to save tax, then don't declare any income.

Gone are the days when someone can willy nilly add their wives onto the payroll or share income, without her actually contributing and being able to verify it. If they check and it is a sham then be willing to face the consequences.

Use the rules, stretch the rules if you are aggressive, but don't break them.

Sam

[n7 Studios]

Originally Posted by coco28

The company I work for insist on knowing about any outside activities we participate in, with regard to income.

Why?

Does your employment contract prevent you from doing similar, direct "competing" work outside of your employment? (they don't want you competing with them for work, getting the work and then deciding you'll go self employed and take the client book with you).

Have you opted into or out of the Working Time Directive? (another common reason a company wants to know if you're doing any personal work).

Apart from the above two reasons, I can't see that it's any of their business to know what other work you do.

You should have notified HMRC within 3 months of starting your self employment, and you can either trade as a sole trader, or set up a limited company (LTD). Depending on your self employment earnings, you'll be required to pay Class 2 NI and Class 4 NI, as well as the tax on your income.

You'll also need to keep a record of your income and expenditure, as a bare minimum - and keep aside the necessary tax / NI you'll need to pay (bear in mind that for the 2009/2010 tax year, you won't actually need to do self assement until January 2011 (at the latest). A common mistake amongst self employed individuals is that they see it as being so far away they don't keep aside the necessary funds to cover the tax / NI bill, so when the time comes they're in a bit of a mess!)

Talk to the tax office first. For me, they were suprisingly on the ball and got everything spot on, which meant I could get started as self employed with very little hassle.

Certainly an accountant can provide assistance with maximising your earnings later on e.g. claiming a moat as your expense (joking aside - there are things you can claim for) - but make sure you get an accountant who understands your business. If you're doing this on an additional basis to your employment, an accountant at this early stage may not be necessary, as the cost involved may not be economically viable (although in the future, any accountant worth their salt should justify their costs by making you some pretty big tax savings).

http://www.ukbusinessforums.com is a good place to look for advice on starting up, too.

[Adrian Cooper]

The best way is an offshore company and bank account.

Aside from the anonymity, 0% tax helps as well

[dsmpublishing]

When i started my online business online my husband earned less so i put it in both names straight away so that i wasnt straight into the 40% tax and even when he left his employment his employer didnt even know he had a second job.

They cant find out by your NI only if you tell them!

[artwebster]

Do not set up a company unless you know what you are doing!

A company represents a second tax paying individual and one more set of tax records to keep. Also, you will become an employee of the company and liable for NHI contributions as will the company on your behalf - the details could affect your tax code so it is possible that your emplyer will be aware that you have another source of income (though he does not need to know how it is earned).

The very best people to talk to about this are the local tax inspectors. They know all the tricks and you will find them extremely helpful - and free!

[John Taylor]

Originally Posted by coco28

Unfortunately its part of my employment contract to disclose

In that case you are legally compelled to
make that disclosure.

An employment contract is a legally binding
contract.

I would strongly advise you to consult with
both a solicitor and an accountant.

The vast majority of the advice you are
getting in this thread is incorrect, misleading
and from unqualified sources.

John

[TelegramSam]

If you want impartial tax advice that has your interests at heart, see your accountant.

If you want to know how to pay more tax, talk to the tax office.

Don't ask a shark if it's ok to go paddling.

[Adrian Cooper]

Originally Posted by artwebster

Do not set up a company unless you know what you are doing!

The very best people to talk to about this are the local tax inspectors. They know all the tricks and you will find them extremely helpful - and free!

The best free advice I would give, again, is have an offshore company and bank account.

I somehow don't think local tax inspectors are interested in tax planning, only tax enforcement.

[spearce000]

If you register yourself as a sole trader (Schedule "D") I doubt it will change your tax code, so it's highly unlikely your employer will find out.

[Keith_Purkiss]

I've been self employed for 29 years, and had a limited company for 5 years.
My Girlfriend has is a member of Cima and has a Phd in Finance, but I still would not give advice about something like this.
As John said you must seek professional help from someone who knows the answers.
That's what I do myself - I use Tax Assist accountants.

[coco28]

Thanks to everyone who responded to my question - I received lots of good advice. As most people know, you don't want to mess the tax man around, even if your intentions are honorable, and even if the tax man's bosses are somewhat less than honorable.

I do need to inform my company about extra-curricular earnings - failure to do so would be in breach of contract. I am reluctant to go down the route of setting up an offshore (i.e non-tax paying) company because I still believe that tax should be paid, regardless of how our leaders decide to scam their expenses claims.

I think the best way forward for me would be to set up an innocent looking website (lets say a Harry Potter appreciation site..) with some adsense, and report it to my employer as extra income. This would flag my NI number as self employed, and I would have an explanation for my employer... I could then report my other earnings via the sole trader route, with the explanation that lots of people visited my Harry Potter site...

I only need a means to pay tax on online earnings, and this 'front' site would allow me to do so, without revealing too much to my employer...

[xiaophil]

Originally Posted by TelegramSam

kids, aunts, uncles, long lost relatives, dead grandparents...it's all been tried before.

That is far beyond "stretching it" and you could expect a knock on the door.

I only mentioned the wife, and IMO it's sensible for partners to arrange their joint affairs to utilize both of the available allowances.

It goes without saying that professional advice should always be sought.

The standard UK tax handbook now stands at over 10,000 pages, and most of those were added quite recently:

Tax law doubles in size under Brown's chancellorship - Times Online

They actually had to reduce the print size to cram more in and keep it at four volumes.

I don't see how a single solicitor or accountant can keep track of that.

[Jeff Henshaw]

Thanks, you are right it is none of their business. Unfortunately its part of my employment contract to disclose, although I am not in any of the groups you mention.

You have answered your own question.

If you breech that contract, then they can determine your contract, legally and morally. They may even have a right to claim 'damages' too. When you took the position/job, you signed and agreed to that contract. If you didn't like it, you could have walked away.

I have been in the same position as you, throughout my paid career (I run my own affairs now), but I always found that by speaking openly to my employer, that they would allow me to run a business - as long as it was not in competition with, or deemed to be promoting competition against the company for which I worked.

Now perhaps I've been lucky - but it dosn't matter now, as I have no employer.

Just as an aside, if you do conduct business outside of your paid employment, be wary in regard to the tax element. Your tax code will alter with your earnings and if your employer's payroll people see a significant shift in your tax code (and they will have automatic access to it), then that might trigger an alarm bell.

Best of luck with your journey.

Regards,
Jeff.

[artwebster]

I somehow don't think local tax inspectors are interested in tax planning, only tax enforcement.

That's just the sort of thinking that enables accountants to diary audit clerks' time at $100 an hour.

Local tax inspectors don't need to do tax planning - they know within very narrow confines the best way to avoid tax for each individual they speak to. Surprisingly enough, even tax inspectors resent paying tax and are very free with their far superior knowledge.

[TelegramSam]

Originally Posted by artwebster

I somehow don't think local tax inspectors are interested in tax planning, only tax enforcement.

That's just the sort of thinking that enables accountants to diary audit clerks' time at $100 an hour.

Local tax inspectors don't need to do tax planning - they know within very narrow confines the best way to avoid tax for each individual they speak to. Surprisingly enough, even tax inspectors resent paying tax and are very free with their far superior knowledge.

You can believe this if you want to.

Ok, they can answer some simple questions if you ring them up. They will send out forms to you, get you registered etc. Even give you a bit of info on a specific.

But if you think for one minute they will err on your side if there are any grey areas then think again. And don't for one moment think there aren't any grey areas - there are.

Also when you say "far superior knowledge", this is very often not the case, especially in a phone call situation.

A lot of tax law is so complicated now that there are many areas of tax planning that can be structured to your advantage, (which only minimally helps alleviate the higher taxes most people are paying these days).

A tax office helper is meant to play a straight bat and give you the data.

If you want to make sure you are getting the best advice, you do need to seek an independent source.

Even then, you have to be your own counsel.

Sam

[artwebster]

Also when you say "far superior knowledge", this is very often not the case, especially in a phone call situation.

I'm sorry your experience has been so much less joyful than mine and that of my clients but, just maybe the answer lies in that rather impersonal mode of contact? A disembodied voice on the telephone is hardly likely to receive the same attention as a keen 'customer' across a desk.

Tax planning is very much over-rated and applies only to a tiny portion of the community. Tax avoidance, however, is a mass market and the tax inspectors have the key.

[TelegramSam]

You mention tax payers as "customers".

It's a pity the tax office don't follow the mantra "the customer is always right"

[Adrian Cooper]

Originally Posted by artwebster

I somehow don't think local tax inspectors are interested in tax planning, only tax enforcement.

That's just the sort of thinking that enables accountants to diary audit clerks' time at $100 an hour.

Local tax inspectors don't need to do tax planning - they know within very narrow confines the best way to avoid tax for each individual they speak to. Surprisingly enough, even tax inspectors resent paying tax and are very free with their far superior knowledge.

Well like I mentioned before - get an offshore company and then there is no obligation to tell anyone anything or to pay any tax.

As an aside, did you know that there is so obligation or statute to pay income tax in the USA? I.e. income tax is unconstitutional.

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