It’s estimated that between 30% and 40% of us are running our own “side hustle” to earn a few extra bob while holding down our day jobs. Others say the figure is closer to 50%. Whatever the actual percentage is, there’s no doubt that many people in the UK are doing it.
If you have gross trading income (ie before any expenses have been deducted) of more than £1,000 in the previous tax year or other income worth more than £2,500, you must register for self assessment. If you have other gross income of between £1,000 and £2,500, you need to contact HMRC.
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If you are a “side-hustler”, you can pay your self assessment tax bill through your PAYE tax code as long as:
- you owe less than £3,000 in tax (you can’t make a part payment to be below this threshold)
- you already pay tax through PAYE, because you’re also an employee or you receive a company pension
- you filed your self assessment tax return online by 30 December
Need to know! PAYE stands for “pay as you earn” and it the process by which HMRC collects income tax and National Insurance from an employee’s salary.
Paying self assessment tax through PAYE
If you satisfy the above three criteria, HMRC will automatically deduct the tax that you owe through your tax code, unless you tell them not to do so on your tax return. And even if you do want HMRC to collect the tax you owe via PAYE, that won’t be possible if you do not earn enough PAYE income from your paid employment. Moreover, you cannot pay your self assessment tax bill through PAYE if you’d pay more than half of your PAYE income in tax or it would mean you’re paying more than twice as much tax as you normally would.
How are deductions made?
The tax you owe to pay your self assessment tax bill will be deducted from your salary or pension in equal instalments over 12 months, in addition to your usual tax deductions. This means you pay your tax bill in 12 instalments rather than one lump sum, which can be better for your personal cash flow. Paying your self assessment tax in this way can make it easier to budget your living costs. And, as it’s done automatically, you have one less thing to think about.
You will still need to complete and file a self assessment tax return. And, crucially, if you choose to file online, you must file your completed self assessment tax return before midnight on 30 December, which is one month earlier than for everyone else.
Copyright 2024. Sponsored post by Mike Parkes of GoSimpleTax - tax return software that can help you manage your self assessment.