Charles Handy, the management guru, calls individuals who earn a livelihood from more than one job "portfolio people". Necessity rather than choice or greed has been responsible for their growing numbers. Cost-cutting, redundancies and the reluctance to take on full-time employees are all features of the current economic climate.
When juggling a portfolio of jobs, it is essential to be aware of the tax and National Insurance position. Inevitably, it will result in your financial affairs being more complicated than those of a 9-to-5 employee. When you fundamentally change the way you earn your income, it is essential that your local tax office is advised. If you have more than one salaried position, you may find you are due a tax rebate.
Tax affairs become more complicated if the job portfolio includes both regular employment and income from self-employment. Employees have tax deducted direct from salary through PAYE. If you are self-employed (or have a freelance income as well as salary from a day job) you are personally accountable to the Inland Revenue for tax liabilities on those earnings, so you must keep accurate records of transactions. Documents such as invoices, receipts for expenses, bank statements and cheque stubs have to be retained to back up the records. To avoid confusing personal and business expenditure, it is advisable to have a separate bank account for income and expenses relating to self-employment.
At the end of their trading year, the self-employed have to submit their accounts to the Inland Revenue. If this income, or "business turnover", to use the Revenue's jargon, does not exceed pounds 15,000 in a full year, less detailed accounts are acceptable.
Business expenses may be offset against income received. This has the effect of reducing the tax payable. The cost of materials used for the work, postage, stationery and telephone calls are obvious expenses. If a car is used, a proportion of the running costs may well be allowable as a business expense against income. Capital items such as a fax machine, office furniture and equipment are also deductible. However, as these are of a capital nature, only a proportion of the cost is allowed each year.
It does make sense to consider employing an accountant. The annual expenditure (on average pounds 200-pounds 300) could well be recovered through a reduction in tax payable. Not only will an accountant advise on what are allowable business expenses, but he or she will also deal direct with the Inspector of Taxes on your behalf. This not only saves time, but possibly a great deal of stress for those unfamiliar with taxation matters.
There are several classes of National Insurance (NI) contributions. A person who is both employed and self-employed, could have to pay NI contributions in up to three classes.
Employees pay Class 1 contributions for each job where earnings are at least pounds 58 a week, or pounds 252 a month. Contributions are normally collected along with tax under PAYE, and the payments are earnings-related.
The self-employed are normally liable for Class 2 contributions if annual earnings are more than pounds 3,200. Additionally they may have to pay Class 4 contributions if their profits or gains are above a certain limit. Class 2 contributions are payable direct to the Contributions Agency, which is responsible for collecting and recording NI. Class 4 contributions are assessed and collected by the Revenue.
Employees who pay Class 1 contributions in more than one job, or people who are both employed and self-employed, should note that the maximum amount of contributions anyone is required to pay in the current tax year is pounds 2,086.08. The agency has a system for deferring NI payments, which is useful for those who are both employed and self-employed. Refunds are payable to employees with more than one job who have paid too much NI. Anyone who becomes self-employed must advise the Agency with form CF11, Notification of Self-Employment.