In fact, you can earn income from a range of different methods provided you are reporting the income and tax to the correct authorities by the required deadlines. So what are the different types of income you can earn? Here are a few examples:
Employed - possibly the most common form of income, it simply means you have a contract of employment with a business and they, as your employer, will deduct any income tax and national insurance due from your salary, paying it directly to HM Revenue & Customs (HMRC) on your behalf and providing you with the net income.
Self-employed - this can come in a range of scenarios, but it effectively means you are running your own business and often working for a range of clients, examples of which are a plumber, gardener or business consultant.
You could be working as a one-man band (sole trader), or with someone else/multiple people as a partnership. As a sole trader, you have personal liability for the business and you are responsible for reporting your income and paying the correct amount of income tax and national insurance to HMRC. For a partnership, the responsibility is shared amongst the partners.
Limited company - you can own a limited company as an individual or on a much larger and more complex scale. The income you can draw as a director can come in various forms (and is a topic for further discussion!), but typically it could be a salary, taxed as employed income, or dividends which you would need to report to HMRC on a tax return, all of which is paid through the company.
Contractor - a contractor earns income and pays tax in a similar way to a self-employed person, however they have signed a contract on a long-term basis with one business.
Land and property income - as a Landlord for a rental property, you are not classed as self-employed, but it is your responsibility to report your income and pay the income tax to HMRC. Again, this is reported via your tax return.
There is no restriction on how many different types of income you can earn at any one time, and the confusion usually comes from what needs reporting to whom, and by when.
"This is when you need an accountant to guide you in the right direction!"
I could talk for hours about how different types of income are subject to different rates of tax and different reporting deadlines (you know I love to do that), but I'm sure you have much more exciting things to do.
One of those things may be following your dreams of setting up a business in an area that you are passionate about, but you may need to keep your employed job for a while before the business gets off the ground.
"Would you like to know more?"
If you'd like to know more about income, tax and deadlines and which employment status would be best for you, do call us on 0333 335 0453 or click here to send us an email enquiry and let's see how we can help you.
Gemma is ATT (Association of Taxation Technicians) qualified, and has worked at Chancery for 10 years before joining Essendon as the Tax Compliance Team Leader. In addition Gemma has now taken on the role as practice manager.
Gemma’s day to day duties include assisting clients to ensure they pay the correct amount of tax and meet their filing deadlines, organising the practice and the people within it.
In Gemma’s spare time she enjoys travelling, going to the cinema, and is a fair weather cyclist.
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