The ‘gig economy’ is burgeoning and, whilst it may attract criticism from some quarters, this does not change the fact that there are literally thousands of people who benefit from the opportunities it provides. Many, for example, find their hours are far more flexible than anything they’d find in traditional roles. This flexibility and the opportunity to pick when they are and are not available for work also provides people with the opportunity to use their free time to supplement their main income. It is these people – and their common questions about taxes – that are the focus of this article.
How much tax will you pay on additional income?
The amount of tax a person will pay on additional earnings they generate will be directly affected by their total earnings from all sources. If, for example, someone earns a salary of £30,000 and supplements this with £7,000 a year from a side gig then, after their personal allowance of £12,500 has been deducted from this, their taxable income would be £24,500. This is below the threshold of £37,500, so this person would pay tax at a rate of 20% and their total tax bill for the year would be £4,900, £1,400 of which would be required because of the earnings they generated from their side gig.
If this additional income were to take their total earnings above £50,000 per annum or more, however, then they’ll be paying the higher rate of 40% on every penny earned over this amount.
So, let’s say the person we’ve used as an example is still earning a salary of £30,000 but that his hard work has really paid off and his side gig is now bringing in £25,000 each year as a result. His total income is now £55,000, leaving him with a taxable income of £42,500. Of this, £5,000 will be subject to the higher tax rate of 40% meaning that he’ll owe the taxman a total of £9,500. Of this, £7,500 would be due on the first £37,500 he earned with £2,000 added to the bill because his earnings exceeded the aforementioned threshold by £5,000.
For reference, any earnings that exceed £150,000 are taxed at 45%.
How to pay taxes on additional income?
If you’re earning income through a side gig, you’re going to need to submit a self-assessment tax return. HMRC will then let you know how much tax you owe and how you can pay it.
Don’t worry, HMRC will already know that tax has been deducted from your primary income and you won’t need to include these figures in your return.
How much National Insurance you’ll need to pay
If you’re earning more than £6,205 but less than £8,423.99 per annum, you’ll need to pay and additional flat rate of £2.95 each week. Those earning £8,424 per annum will pay 9% on all profits earned over this figure but below £50,000. An additional rate of 2% on all profit exceeding £50,000.
Anyone that needs to pay the weekly fee can do so at gov.uk. Should either of the higher rates apply, HMRC will inform you of what they’re owed after you’ve submitted your self-assessment return.
Can you get help?
You certainly can! Countable Accountancy offer help with your accounts for a low monthly fee. Get in touch today to find out more.