Employed/Self Employed tax query

FreudianSlippers

So I'm having a bit of a disagreement with the SO regarding they manner in which which 2 different categories of people would pay tax. (Disclaimer, I don't have a 'right' answer, i just think her answer is wrong) In order to illustrate I've created 2 examples:

A is self employed and makes 50k/year but has a part-time PAYE job which grosses 25k/year .

B is a full-time PAYE worker making 50k/year but had a part-time consultancy job which grosses 25k/year.

Now, I think that A simply files a self assessment starting from 0 and the additional PAYE job will automatically get deducted at the higher band. But B will need to self-assess the entire 25k at the band over the 50k PAYE.
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Does that make sense, and please tell me I'm right - I'm fed up being wrong all the time!

srsly78

Self-employed can mean several different scenarios. You mean sole trader right?

FreudianSlippers

srsly78 wrote: »

Self-employed can mean several different scenarios. You mean sole trader right?

Yes, apologies.


She just explained her position in a way that makes me think I might be wrong: "the PAYE is always treated as the 'primary' employment since it is deducted at the source"

Would the situation actually be different where person B was not a sole trader but rather just an individual getting paid on an ad hoc basis?

srsly78

Getting paid on an adhoc basis? That means just not bothering to register and not bothering to pay tax? Yes it would be different, but illegal as well possibly. There is a threshold for this but it's quite small I think.

If everything is done right there should not be any difference. Assuming the same tax credits and the same income apply in both scenarios. Another difference might be the treatment of expenses, more self-employment might mean more expenses.

When it comes down to it, income is income - and you pay the same tax on it.

dbran

Hi

Both A and B must make a return of ALL of their income and both sources of income must be included on the tax return.

Regards

dbran

Skybox

I don't see any huge difference between the amount of tax paid.

Assuming sole trader, both A & B would have to complete an income tax return and would be entitled to a PAYE credit.

The biggest difference that I can see would be with the timing of paying the tax.

A makes 50k a year self employed, PAYE income of 25k. The tax on the PAYE income is deducted from A's wages and A must submit a tax return and pay the tax on the 50k by October of the following year.

B earns 50k a year as a PAYE worker and has the tax deducted from this from wages. A must submit a tax return and pay tax on the 25k by October of the following year.

FreudianSlippers

srsly78 wrote: »

Getting paid on an adhoc basis? That means just not bothering to register and not bothering to pay tax? Yes it would be different, but illegal as well possibly. There is a threshold for this but it's quite small I think.

If everything is done right there should not be any difference. Assuming the same tax credits and the same income apply in both scenarios. Another difference might be the treatment of expenses, more self-employment might mean more expenses.

When it comes down to it, income is income - and you pay the same tax on it.

Excuse me, but are you implying that I'm asking how how to avoid paying income tax? think very carefully before answering that question.

FreudianSlippers

Skybox wrote: »

I don't see any huge difference between the amount of tax paid.

Assuming sole trader, both A & B would have to complete an income tax return and would be entitled to a PAYE credit.

The biggest difference that I can see would be with the timing of paying the tax.

A makes 50k a year self employed, PAYE income of 25k. The tax on the PAYE income is deducted from A's wages and A must submit a tax return and pay the tax on the 50k by October of the following year.

B earns 50k a year as a PAYE worker and has the tax deducted from this from wages. A must submit a tax return and pay tax on the 25k by October of the following year.

Thanks I guess was was thinking that B wouldn't be a sole trader since their primary employment was PAYE. But they would have to register as a sole trader for the additional income that they would receive.

My question was, I suppose, more to do with banding. I assumed that the PAYE portion would be automatically done and the person would be paying the additional amount at the higher band.

Guffy

FreudianSlippers wrote: »

Excuse me, but are you implying that I'm asking how how to avoid paying income tax? think very carefully before answering that question.

Pretty sure that was referring to the scenario or rather clearing up what a term meant. Also is it possible to defame an anonymous user name?

srsly78

FreudianSlippers wrote: »

Excuse me, but are you implying that I'm asking how how to avoid paying income tax? think very carefully before answering that question.

Relax, you are over-reacting. I interprested "ad-hoc" as not doing things properly, notice the question marks.

FreudianSlippers

gufc21 wrote: »

Pretty sure that was referring to the scenario or rather clearing up what a term meant. Also is it possible to defame an anonymous user name?

Yep - where they are readily identifiable by others as I would be my my many on here.

srsly78 wrote: »

Relax, you are over-reacting. I interprested "ad-hoc" as not doing things properly, notice the question marks.

Ok apologies. I misinterpreted what you said. I was thinking the self assessment exception of "fees and other income not subject to the PAYE system".

It's a totally hypothetical situation, so I'm really interested more in the manner in which which the different types of worker would pay their tax.

It seems both parties would simply file the self assessment and declare their PAYE work

namenotavailablE

As dbran noted, total income is the same in each scenario so the total income tax (calculated on total income from all sources) will also be the same in each scenario.

If the individual in each scenario is a single person, the first 32800 will be taxed @ 20% and the remainder @ 41%. This gives the gross tax due. You can deduct 'non-refundable' tax credits (such as the single person credit and the employee credit) from the gross tax due. Any tax paid by way of PAYE on employment earnings or any preliminary tax already paid (both are 'refundable' tax credits) will be deducted from this value.

PRSI and USC also have to be computed.

mrs vimes

As others have said, both of your people are "chargeable persons" as both are earning money from non-paye sources.

They can each choose how much standard rate band and credits to allocate to their paye employments and the balance will be used against their self-employed income. The proportion of paye to self-emp is not relevant.

They may for example decide to pay 41% of all paye income during the year and then only have a small balance to pay in October/November (I've heard barristers are particularly bad for saving up their tax ).

Or they may decide to use all rate-band and credits against their paye and pay the bulk of the tax due under self-assessment.

The only credit which cannot be moved at will is the paye credit which is only allowed to be set against paye income and only at 20%.

HTH

Eugene Norman

FreudianSlippers wrote: »

Excuse me, but are you implying that I'm asking how how to avoid paying income tax? think very carefully before answering that question.

You are clearly trying to pay your tax correctly, nevertheless I doubt pseudonyms can be defamed.

FreudianSlippers

Eugene Norman wrote: »

You are clearly trying to pay your tax correctly, nevertheless I doubt pseudonyms can be defamed.

It's neither here nor there and it is a bump of a rather old thread, but pseudonyms can be defamed where the identity of that person is known and/or tied to the pseudonym. Other posters/mods know who I am particularly in the Legal Discussion forum.

I've brought a few cases this year for clients and settled one recently.