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I'm self employed, and may be about to take on an open-ended contract working for a separate company. They would pay me as a contractor, and I would then pay taxes on that (self-assessment) at the end of the year.

However, it is my intention to use this money to buy equipment towards my current self employment activities.

The contact work and my own activities are in the same area, but are not directly related.

(i) Do I have to pay income tax on the money earned from the contract work, then buy equipment for my other self employment activities.

or

(ii) Can I class the whole thing as one business and buy equipment with the pre-taxed contract money, and claim the equipment as expenses, before paying tax?

or perhaps

(iii) there's no real difference as I'd end up paying tax on the money either way.

Just wondering which way is most tax efficient, if at all. The above are my thoughts, and having written this down I'm inclinded to think (iii) is the answer.

Sorry if this sounds a bit basic or silly as I'm just starting out.

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The answer is (ii). Treat the contract income as additional revenue for your existing business, and claim tax relief for your equipment in the normal way.

  • Thanks. I only ask because when I fill out my self-assessment on HMRC it allows me to add multiple businesses (currently I just have the one "business"), so I was wondering if tax was paid separately on each. However, maybe HMRC just do this to divide up the work, and combine all income and expenses at the end of the form? – Pixel Jan 9 '18 at 8:03
  • why do you need two businesses here ? it addes extra cost in terms of accounts etc – Neuromancer Jan 9 '18 at 13:19
  • I don't, but I was wondering if it was permitted to combine my contractual work and my other work into one business. Even though they are both in the same sort of field, they are not otherwise connected. I'm happy to make it one business, so I'll just do that. – Pixel Jan 9 '18 at 15:01
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    A business is supposed to have an area of activity. If you do two completely different things (programming and goat herding) you are supposed to set up two different companies. In practice, those area can be quite wide, though not quite as wide as "whatever someone pays me to do". If you're using the same equipment for both jobs, that's a good indication they're in the same area. – Rupert Morrish Jan 9 '18 at 20:24
  • They are both in the cryptocurrency realm, so not as disparate as programming and goat herding. So I think I could combine them into one business. – Pixel Jan 10 '18 at 11:57

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