UK PAYE and additional income

[PumaThunder]

I'm currently working in the UK on the PAYE system at my full time job. I run a website in my spare time that has adverts on it and it's starting to earn a few quid. So far it's cost me more to set up and host it than it's made but I think in the next 6 months or so my earnings from it will overtake my outlay.

How would I go about declaring this income, do I just fill out a self assessment form each year and put on any extra income? Can you also put on there any outgoings for the site like hosting fees and advertising? What about the cost of my computer that I use to run the site does that get offset against the earnings?

Would I be better off setting up a company and having the money from the site pay to the company and then pay myself a small salary or dividends from the company?

I have absolutely no idea about any of this so any advice is much appreciated.

Thanks.

 

[Becky]

Welcome to the forum!

If you are earning money through running your own business then you will need to record this on your tax return. Even if you are not making any profits. In fact if you have made a loss, this will be set against your employment income and you may actually get a refund of tax! First things first, you need to register with HMRC:

HM Revenue & Customs: Self-employed tax and National Insurance

You are correct that you can deduct certain expenses from your income, but it would be worth reading up on what you can and cannot deduct. For example, because purchasing a computer is capital expenditure this is treated differently to revenue expenditure (such as hosting costs) - instead of receiving a straight deduction against income qualifying capital expenditure generates capital allowances. There is some information about allowable costs here:

http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf

In terms of whether you should operate through a limited company or not, it would depend on your level of profits. There is a lot more admin if you have your own company, so it's only worth doing if you feel that your profit levels are high enough to justify it. There are some tax savings compared with being self-employed too.

Hope this helps!