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I'm living in the UK and doing some after hours experiments with Android OS. Some of my apps started getting money. I still haven't entered my bank details in Merchant account, so every time after login I see a warning that earnings are postponed because of this. My question is should I and how do I pay taxes on these earnings which are around £100-500 per month. I do have full-time job so my company does all the tax work from my primary earnings. Maybe there is a way to convert these directly to Google Checkout or Paypal so I could spend them on Amazon?

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I highly recommend setting up your self-employed status (and get UTR from HMRC). This could seem complicated but it's not! You are making a decent amount of money and who knows that with a little effort this could be your primary source of income! You could also create a separate business banking account (though it's not required)---HSBC has a free business banking for 18 months. –  Jaywalker Jan 6 '12 at 10:21
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Legally you are obliged to pay income tax and possibly self-employed National Insurance contributions on these earnings - see this page for details of how HMRC will handle this. You should write to HMRC after the end of each tax year to inform them of the extra income - you may well end up having to complete a tax return, which is quite straightforward.

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