Contractors' Questions: Does the odd tech job make me self-employed?

Contractor’s Question: I currently have a part-time, salaried IT job, but recently took on some freelance work on the side. It will be occasional tech work for small sums of money – over the course of the first month, for example, I made only £200 or so. Do I need to declare this money to the taxman? And if my sums from contracting do increase, at what point am I obliged to inform HM Revenue & Customs (HMRC), assuming I don’t have to already?

Expert’s Answer: The income you are receiving from your freelance operation, no matter how small, is taxable income. As there has not been any tax deducted at source, you will need to report this to HMRC. The way you report this is via a self-assessment tax return.

I would also recommend that you contact HMRC as soon as possible to advise them that you have started self-employment and the date you commenced. The tax authority’s website provides some useful additional information. And based on the income level you mention, you should also look into the small earnings exception.

Once you have registered, HMRC will issue you with a personal tax return with a section for you to include your income and any expenses you incurred from your freelance work. If your freelance work commenced in the current tax year i.e. after 6 April 2010, then you should include your income and expenses for the year from 6 April 2010 to 5 April 2011 on the tax return. HMRC are likely to issue you with a tax return or a notice to file a tax return in April or May 2011. You will need to file this online by 31 January 2012 and pay any tax due by that date.

I would therefore recommend that you continue to record your income and any business expenses (and keep all your receipts) to allow you to complete your tax return, or so you can provide it to an accountant should you want professional help to complete it.

The expert was Martin Hesketh, managing director of Brookson, a contractor accountancy firm.