[Closed] Earning PAYE and being self-empl or running a business

Whatever you earn will just go on top of your PAYE earnings, so no way out - or, open a business (Ltd you can do, unsure of self-employed) and put the money in, and don't take it out until you aren't on PAYE.

And I wouldn't worry about tax code changes, they only see the end number - and if they ask, (apart from telling them to bog off) just tell them they are your lottery winings 🙂

self assessment tax return will allow you to declare this additional income; and will allow you to request that your PAYE code is not adjusted.

Is the income *really* that much, over 3 months, that it will affect your income tax? if that is the concern, there are measures you can take to minimise tax due; increased pension contributions, VCTs / EISs..

Not sure how it works when you have a second income stream outside of your normal PAYE employment actually. I suppose it comes under self-employment section. In which case you'll need to allow for Class 4 NICs (unless there is dispensation due to amount, pro rata, being below threshold.)

You don't have to create a limited company ("ltd") in order to work self-employed.

Setting up a ltd company you'd have to comply with various legal requirements including have a Director, company secretary, Companies House registration, set up PAYE for any employees (i.e. you) and keep company accounts (although presumably you would qualify for the small businesses accounting regime). But you create a separate legal entity from yourself for financial purposes (that's the real point of creating a limited company).

Alternatively, you could simply engage in self-employed work as a sole trader. No PAYE, no setup legal requirements (other than notifying HMRC that you are undertaking self-employed work as a sole trader). Simples.

Downsides? There's no separate legal entity from yourself - you ARE the business. You pay National Insurance contributions directly from your earned income (because there's no PAYE for sole traders) and therefore no 'payroll' - your tax position isn't dealt with by 'codes', you complete a self-assessment form on the back of your 'sole trader' accounts (which I'd strongly suggest you have drawn up by an accountant) and pay your tax in two lump instalments - end of January and end of July. So remember to save some of your self-employed income to pay these.

Minimising tax? When you set yourself up as a sole trader, I'm sure you'll [b]need [/b]to buy all kinds of things in order to operate your business, which (please speak to an accountant) you can probably write some/all of as against your tax liability 😀

I'm sure you'll need to buy all kinds of things in order to operate your business

^This.

I've done some freelance work while working fulltime in the past. Wrote off most of it against expenses - heating, lighting, new computer, stationary, TV license, rent etc - perfect if you're doing the work from home.

The HMRC provide a handy booklet to help you do this, it's all based around proportional use http://www.hmrc.gov.uk/manuals/bimmanual/bim47820.htm

yes, that's a useful guide phil - you can either apportion by number of rooms or by square footage IIRC. On the accountant front - it may be the benefits of engaging an accountant will be wiped out by his fees - that was the advice the accountant I saw (on initial, no fee, consultation) gave.

I just do my tax return myself now - might not be tax efficient but feel confident enough it's up to scratch..

Just play a straight bat; keep decent records; and it'll all work out fine..

Cheers guys: comments and the booklet link all very handy 🙂

I was self-empl years ago so am familiar with certain aspects of SA etc.

I want to play it straight but at the same time I want to maximise my earnings should I get busier on the PAYE and need to eake into my family time to manage the freelance stuff.

Off-setting a load of kit is a start even though I have most of it. Can I use receipts from purchases made over the last year or two?

Might stick to self-empl route for the first job or two then ramp up to Ltd Company if the bigger deals come off. Don't mind paying an accountant (once properly up and running) provided he knows his beans.
Am also looking at this as a longer term option should I want to go solo full time.

Cheers again

I seem to recall you can do some arrangement where the stuff you bought a little while ago can be vested into your self employment 'business' with some allowance for depreciation, might be useful.

You could start the self employment at a date to suit you when you register; that might help, and also you could claim exemption from NICs until you properly get going.

I'd say stick at sole trader unless there is financial risk in the employment (as in, lose your home sort of risk). Might need professional indemnity insurance, too.

Good luck!

Note to self ... need to revisit this thread again. 🙂

Need 2nd income ... errmmm

Bear in mind if your profits are over a certain threshold (and therefore the amount of tax you owe) you will need to not only pay your tax but also a "payment on account" - 50% in January and 50% in July, against *possible future* profits.

You might owe 10,000 after your first return but actually have to pay by January 31st 10,000 + 5,000 on account then another 5,000 on account in the July.

This caught me out.

you can apply to have payments on account reduced if you don't think that level of profit will continue, though..

Yes you can but you on the "special file" then

I'm writing this under a new username because some people at work know I frequent this hive of knowledge.

<whisper>pssst... you might want to alter your profile, unless that name is a pseudonym</whisper>

<whisper>pssst... you might want to alter your profile, unless that name is a pseudonym</whisper>

Don't worry, I have no clue who Neil is 😀

Also, don't forget cash is still tax free 😉

Some good and bad advise above. There are other factors to consider as in what you are currently earning under PAYE, the expected profits for the freelance work and how many clients you would have. If you are already a higher earner then you may as well go the limited company route and pay tax at 22.5% on dividends instead of 48% (40% income tax, 8% NIC class 4) under Self Assessment. Limited requires more involved accounts and unless you know what you're doing then you will have to budget for an accountants fee.
Self Employed or Limited you can claim capital allowances on any assets you require to perform the job and expenses including home office use (work related i.e. not TV licence but can include rent or mortgage interest) but this has started to be challenged by HMRC so take the mick and pay the consequences.
Setting up a Limited company or self assessment for a 1 off job would be tax evasion in the eyes of HMRC as you should have been employed or at least under IR35 rules.

Craig, I pay 40% tax as it is. That's why I was intrigued to see if setting up a company could get around having to pay the same rate on a second (e.g. self-empl) income. If I paid myself PAYE as well, would that not begin at 40% or would I have a new allowance to eat into first? Or would dividends (quarterly?) just be best anyway?

Can't be faffed with trying to figure out every way to save money, e.g. claim expense. Would rather pay a decent accountant to sort that out once I've got the deals done.

Cheers

If you are already a higher earner then you may as well go the limited company route and pay tax at 22.5% on dividends instead of 48% (40% income tax, 8% NIC class 4) under Self Assessment.

This isn't right surely. You'll need to pay additional tax on your dividends if you are a higher rate tax payer.

Higher rate on dividends is 32.5% less 10% tax credit making 22.5% payable

But you pay tax in the company so more complex than that - Search on the internet for calculations.

Your income including what you have earned through PAYE and Dividends less your tax allowance would go into your self assessment calculation and you would pay the tax on the whole income less what you have already had deducted through PAYE.
As a limited company you could give shares to your wife and use her tax allowance up to the higher earnings making the dividends effectively tax free.
As Mefty says you pay corporation tax at probably the 20% rate on the taxable profits so this needs to be taken into account too. Limited would still be the most tax efficient but on a 3 month project are you going to get enough profits for all the extra work and would you have other clients otherwise it's tax evasion.

It's not tax evasion, it may be challenged under ir 35 etc - not the same thing. But your other points are well made.