How to declare additional income without being self-employed

Do you know how to declare additional income without being self employed but still making extra money?

Whether your additional income comes from freelance work, rental properties, investments, or other sources, understanding the process on how to declare is crucial.

And if you are receiving extra income you must need to know if it’s taxable, and how to not get in trouble for receiving this money.

Types of income

It’s not that uncommon for people to have more than one source of income these days.

And because of that we can list various types of income that exist according to the source they come from.

The first category is the earned income, they can be your wage or salary, earned by your work. Wages are usually paid by hour and salaries are paid annually.

Incomes can be from commissions earned by selling something, or from tips that customers give for your service.

Another type of income are the contract works, that are usually done to one specific demand or task to a client. The same goes to freelancing works, they are usually on a short term basis and don’t need to have an employee bond.

Also incomes can be from investments, interest rates, dividends, inheritance, and from many more sources.

Understanding the different types of income is crucial for proper financial planning and tax compliance. 

Individuals often receive income from multiple sources, and recognizing these various streams is essential for accurate reporting and managing one’s overall financial portfolio.

How to declare additional income?

To understand how to declare additional income you need to gather a little information, especially from where you live.

Depending on your country and where you are located, the taxes laws and reporting requirements.

Also you will need to understand the nature of your additional income, clearly identify and categorize the sources of your additional income, to discover if they are taxable or not.

They can be from rental income, freelancing, investment gains and other supplemental earnings.

Any money that comes from other sources will have some tax, and to calculate the tax liability individuals are required to register with HMRC for a Unique Tax Reference (UTR) and complete a self-assessment tax return.

If you have a second income, it’s crucial to inform HMRC about this additional source of income as soon as possible to ensure compliance with tax regulations.

Through Self- assessment tax return

A self-assessment tax return is a process where individuals in the United Kingdom report their income, gains, and other financial details to Her Majesty’s Revenue and Customs (HMRC).

The self-assessment tax return is a document where taxpayers report their income, gains, and other financial details to HMRC, enabling the calculation of the tax owed.

And before you fill the self assessment you need to register with HMRC to obtain a UTR number.

And in the tax return document you’ll find sections to declare various types of income, also it’s needed to claim deductions and allowances.

Once the relevant details are provided, the tax return calculates the individual’s tax liability based on the applicable tax rates and allowances.

After this the individuals will be required to pay any tax they owe to the HMRC by specific deadlines. And the payment can be made online or through the phone.

Through the PAYE

Besides the self assessment tax return system, you can declare your additional income to HMRC by the PAYE, pay as you earn, system.

The PAYE (pay as you earn) system simplifies tax handling when you earn extra income from another job.

If you work for multiple employers, your taxes are automatically documented and deducted through PAYE, turning the whole process easier.

Why do I need to declare my additional income?

Now that you already know how to declare additional income, you’ll need to understand why this is important to HMRC.

Declaring all your sources of income, even the second income, to HMRC (Her Majesty’s Revenue and Customs) is a legal requirement.

This happens because the UK tax system works on a self assessment basis, so everyone is responsible for reporting their own income accurately.

By declaring your second income, HMRC can accurately assess your overall financial situation and calculate the correct amount of tax you owe.

So you can contribute the appropriate share of your income to fund public services and infrastructure.

Reporting all sources of income promotes transparency in the tax system. It helps prevent tax evasion and ensures that everyone is contributing fairly to the country’s tax revenue.

Also if you don’t declare to HMRC you’ll receive some penalties for non-compliance with the self-assessment tax return system.

If you fail to pay your tax bill by the due date, HMRC may impose late payment penalties and the percentage will change depending on the time you didn’t pay.

Daniel 2 de April de 2024