Q. I'm an employee but thinking of starting a part-time self employed business. Is it possible to be both an employee and self-employed at the same time and how does it work?

A. Yes, you can have both employment and self-employment income. For tax purposes, all of your income is accumulated and you only have one personal allowance, which can continue to receive through your tax code in your employment. You must register your self-employment within 3 months of commencing (penalty for not doing so is £100). You will then also need to complete a Tax Return each year, whether you are sent one or not. Being self-employed you will become liable for both Class 2 and Class 4 National Insurance Contributions on your self-employed income as well as the Class 1 Contributions on your employment income. However, dependent on your level of income, there is a maximum amount of national insurance you have to pay and can obtain a refund if you overpay during the year - the actual calculation is quite complex and involves 9 stages! The maximum figure is not one set figure.

Q. I'm a farmer with a field that has a good chance of gaining planning permission for industrial use. Do you know how much the Planning Gain Supplement is going to be?

A. The Planning Gain Supplement is still in consultation and is not yet law. It is a proposed supplement on the gain between the current use value of the land and the value after planning permission is given. It is not likely to be reportable to HMRC until the land goes into development. So far, there is no definite figure on the level of supplement to be charged on this gain, although Gordon Brown has used words such as "reasonable". To you and I , 2% sounds reasonable, but Mr Brown may consider that 40% is more reasonable! Some rumours (and that's all they are) suggest that brownfield sites may have a supplement of 10% and greenfield of 20%. Watch this space!

Q. I run my own company and have a directors loan account that is overdrawn by £20,000 at 31 December 2005 and the taxman wants £5000 from me. Can I avoid paying this?

A. The strict answer is "yes" but it's not that easy. The tax in question is known is commonly known as S419 Tax and was brought in to avoid owner managers from taking funds from their company by loans rather than salary or dividends in order to avoid tax. So the taxman asks for 25% of your overdrawn loan to be paid to him. However, it is also only a loan to him. When you repay the loan, the taxman has to repay the 25% to you as well. The tax is due 9 months after your accounting period in which the loan is made but can be avoided if you repay the loan before then i.e by 30th September 2006. If you repay it after then, you will have to wait until 9 months after the end of the period in which it is repaid, to receive your repayment.

In addition, if it is an interest free loan you will become liable to tax on a benefit in kind, being treated as having received remuneration equivalent to interest at the official rate. So consider charging interest on the loan. You should have reported this benefit on a P11D, the filing date for which has already passed!

Apart from repaying the loan in cash, it may be possible to transfer assets into the company in exchange or vote a dividend to clear the overdrawn loan account. Another option is to have the company write off the loan. The tax implications of these will depend on whether you are a higher rate tax payer or not and expert advice is essential.

If you have any questions you would like to have considered for entry into a future question and answer corner please send them to us.

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