It was back in 2014 that HM Revenue & Customs (HMRC) first began targeting those with second incomes. Known as moonlighting, many contractors and business owners start their own ventures by freelancing on the side, balancing their time and efforts between their full time roles and career ambitions. Four years on and the war on undeclared second incomes isn’t over. Fear of non-compliance, however, shouldn’t stop you from pursuing your dreams.
As a leading provider of outsourced, bespoke accounting and tax services, we assist professionals from all walks of life and at every stage. Starting out as a self-employed professional isn’t easy, but ensuring compliance when taking on a second career is important. Read on to discover our top tips for keeping HMRC satisfied when taking a second income and build your business the best way you can.
Fulfilling your tax and NI obligations
Becoming an independent contractor is more than just finding your first contract role. There are many factors that must be considered before you even begin job hunting, one of which is how much income tax you’ll pay.
One of the perks of becoming a contractor is the higher earning potential, but this could push you into the higher rate tax bracket. Taking advice and assistance from an accountant to strike the right balance between both forms of employment is recommended.
Make sure you can contract on the side
One of the very first steps you should take when considering whether contracting on the side is right for you is whether you are contractually able to do so. Some employers don’t want their employees working on the side, as freelance ventures can provide distractions from their everyday roles. The Muse recommends checking your contract first:
“Nobody likes sifting through the small print, but this is job #1 when you’re getting ready to start freelancing. The reason is that some companies include non-compete clauses, which might limit or prevent you from doing the same work outside the company or for the same clients. And, if what you’re doing isn’t allowed, you’re at risk of being fired or even sued. So, read those employment agreements carefully, and then stay on the right side of the law.”
Declaring your second income to HMRC
To ensure that you don’t become the subject of an HMRC investigation due to any undeclared income earned from your roles outside of your full time job, be sure to register with HMRC for Self Assessment.
All your income must be reported annually via this tax return. Depending on your earnings from both roles, you may qualify for a tax refund. With your tax, remember honesty is always the best policy!