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Many business owners decide to start their businesses while still employed, running their businesses during the evenings and weekends. If you’re thinking of starting your own ‘5 to 9’ business, here’s a quick guide to the tax implications you’ll need to consider.

You’ll need to register with HMRC

You’ll need to make sure HMRC knows about your business, no matter how small it is. If you’re setting up as a sole trader, register with HMRC here.

If you’re going to set up as a limited company, you’ll need to register with Companies House, which you can do either directly, through an accountant, or through a specialised formation agent. Companies House will then notify HMRC that your new company is active. You may then also need to register as an employer if you want the company to pay you a salary, or to hire staff. And you’ll also need to let HMRC know that you’re now subject to Self Assessment as a director.

You’ll have to start filing a tax return

If you’ve only ever earned money through a job up till now, you may have never needed to fill in a tax return, but as a business owner, you’ll have to start!

Your tax return needs to include all your income, so you’ll need to fill in a set of employment pages for the salary and any benefits or expense repayments you receive from your day job.

If your business is a limited company, you’ll need to fill in another set of employment pages for the salary the company pays you, and any benefits it provides to you (such as private medical care) and expenses it reimburses to you.

If your business is sole trade, you’ll need to fill in a set of self-employment pages as well. If you have more than one sole trade, you’ll need to fill in a set of self-employment pages for each trade.

You may get a second tax code

Your tax code is the mechanism that your employer uses to deduct a particular amount of income tax from your wages each month. It tells your employer’s payroll system how much tax to take off your wages under the PAYE scheme. HMRC tells your employer which tax code to use for you, depending on your individual circumstances.

If you’re running your business as a limited company and the company pays you a salary, you’ll get a second tax code from HMRC for your salary from the limited company. Usually, your tax code on your existing job will reflect your personal allowance and your second tax code will not reflect any allowance.

If you’re running your own business as a sole trader, then you’ll only have one tax code (assuming you only have one day job!). As a sole trader, you pay tax on your business profits in your tax return rather than as a part of your wages, so the tax code that your employer uses for you shouldn’t be affected.

You’ll pay extra National Insurance Contributions (NIC)

As an employee, you will already pay class 1 employees' NIC on your wages from your day job. These are deducted from your salary along with income tax, and your employer pays them to HMRC on your behalf.

If you’re also employed by your own limited company, then you’ll also pay class 1 employees' NIC on your wages from that company, once they go above a level called the primary threshold. The company will also have to pay additional employers' NIC on wages above the secondary threshold (since 6th April 2014 these two thresholds have been the same figure).

If your business is a sole trade, you could pay two kinds of National Insurance:

  • Firstly, you’ll usually have to pay a flat rate of class 2 NIC. If your profits are under the limit for that tax year (£5,885 as from 6th April 2014), then you can apply to be exempt from class 2 NIC, and this shouldn’t affect your entitlement to State Pension and other benefits if you’re also paying class 1 NIC on your wages.
  • You’ll also pay class 4 NIC on your business’s profits - and you can apply to defer your self-employed NIC if you’re paying enough class 1 NIC on your wages.

All businesses, no matter how small and simple, are subject to tax rules, so if you’re not sure what your obligations will be once you’ve started your own business, have a chat with an accountant. If you don’t have an accountant, check out our Find an Accountant directory.

If you're thinking of joining the ranks of '5 to 9ers' and starting up your own business in the evenings and at weekends, here are some things to consider before you get started.

Look at the rules of your employment

Read your contract of employment carefully. As it stands, it may either not allow you to do any work outside of your job at all, it may stop you from doing certain work that’s closely related to your day job, or it might say you have to have your employer’s permission if you want to start your own business. And, it might automatically give your employer the legal right to any intellectual property you create, even if that’s in your own time. You may need to have a frank conversation with your employer and ask them to revise your contract if any of these apply to you.

Talk to your employer

You’re best placed to know how much to share about your new venture with your employer, but I would usually recommend being upfront about your plans. In this social media-oriented world, it would only take one “thank you” tweet from a well-intentioned customer to blow your cover. Be honest with your employer and you could find a good sounding board for business issues, or even a new customer. The first customer of Great Guns Marketing was founder Liz Jackson’s former employer. That business now turns over millions every year.

The new skills you learn while running your business, such as customer service, social media, marketing and bookkeeping, could also potentially be very useful to your employer - so everybody wins!

Manage customer expectations

How quickly do you expect a response when you email a business? Remember that your own customers will have the same kinds of expectations, but if you’re working full-time and running your business in your own time, you may not be able to stop what you’re doing at work to reply to customer queries.

Don’t be afraid to explain to potential customers that you’re running a business in your own time and that you may not be able to respond during working hours. This is now such a common scenario that it’s very likely your customer will understand and respect it.

Do, though, tell your customer this at the start of your relationship, so that their expectations are set at a realistic level from the start.

Plan ahead to manage calls during business hours

Even if you manage your clients' expectations, they’re still likely to want to contact you during the day, so consider taking advantage of automation and outsourcing services that can help you manage these messages. A call service like Moneypenny or AnswerAmerica can take your call for you and email you the message, or you could use a service like Google Voice (US only) to redirect calls during business hours to voicemail, then listen to (or read) the voicemail. You can even set up Google Voice to customise greetings for individual phone numbers, so you can leave important messages for your clients when they call.

Create a back-up plan for emergencies

If an urgent issue comes up in your own business during working hours at your day job, what should you do? For example, if you have created an app and it goes down during working hours, how can you handle that?

Plan for this scenario before it happens, and if possible, reach an agreement with your employer about what you’ll do, or make other arrangements. For example, you might know a freelancer who could help you out during daytime working hours, or even a family member or friend who could hold the fort for you.

With some forward planning and communication with your employer, starting a business when you’re still employed doesn’t have to be daunting prospect.

PayPal Here is...er...here

Posted on 18 July 2014 by 0 Comments

We’re excited to announce the launch of a new integration between FreeAgent and PayPal Here, making it easier to process credit and debit cards and take payments via your smartphone or tablet - wherever you do business.

All you need to do is download the free PayPal Here app (for iPhone, iPad and Android), order your PayPal Here Chip and PIN card reader (available from PayPal) and set up your PayPal business account. When you’ve done this you’re ready to go. It’s that simple.

How PayPal Here works with FreeAgent

Once you’re ready to start accepting payments you need to enable the PayPal Here feature in FreeAgent.

When creating an invoice you’ll see a new online payment option for PayPal Here. When you’re viewing the invoice on a smartphone or tablet, select the “PayPal Here payment” button. This is for mobile payments only, so although you'll see the button when viewing the invoice on a laptop or desktop computer, you won't be able to use it.

Just show your customer the invoice to confirm the payment amount and hit the PayPal Here payment button. This will open up the PayPal Here app on your smartphone or tablet and connect it to the PayPal Here card reader.

PayPal Here payment button on FreeAgent invoice

To process the payment, ask your customer to insert their debit or credit card into the PayPal Here card reader*, enter their PIN and click the green button. You’ll then be redirected back to FreeAgent, where you’ll see the invoice now marked as “Processing”.

And that’s all there is to it!

In years gone by, accepting payments was an expensive nightmare of merchant accounts and point of sale hardware. With technology like PayPal Here, mobile payment processing has been radically disrupted, making it simple and affordable for small businesses to accept payments wherever they are. This built-in integration with FreeAgent removes another level of friction, and ensures everything is tied up and seamlessly reflected in your accounting system.

Visit PayPal to buy the PayPal Here card reader.

*PayPal Here is subject to terms and application approval and fees apply. No monthly fees. Transaction fees apply: 2.75% per Chip and PIN transaction, and 3.40% + 20p per transaction for card payments made by swiping the magnetic stripe or manually keying in the card details.

Taking a break from work can be a great way to recharge your batteries. But if you run your own business, going on a long holiday can also be a daunting prospect that makes you feel like you’ll be abandoning your work by taking some time off. So how can you take a successful holiday without feeling like you’re neglecting your business? Here are four tips that should help.

How do you take a break from your business without feeling like you’re abandoning it? Hit us up on Twitter or leave a comment to let us know!

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