MegaSack DRAW - This year's winner is user - rgwb
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Mrs FD is thinking of setting up as a Ltd company. Currently she is PAYE, which she would continue to do, but now has the opportunity to subsidies her income, up to £5k per year.
At 40% tax it hardly makes it worth doing the extra hours, hence where the ltd company idea comes from.
Does anyone else do it, is it straightforward to set up/operate?
Ta
If she's already a higher rate tax earner through PAYE she wont be able to draw any salary or dividends from the Ltd company without attracting 40% tax on it. She could put it in pension to avoid that or if you are not a higher rate tax payer she could pate you up to 50% of the dividends. Or she could keep it in the company bank account and draw it off at a time she isn't earning that much, during statutory paid maternity leave for instance.
[i]If she's already a higher rate tax earner through PAYE she wont be able to draw any salary or dividends from the Ltd company without attracting 40% tax on it. She could put it in pension to avoid that or if you are not a higher rate tax payer she could pate you up to 50% of the dividends. Or she could keep it in the company bank account and draw it off at a time she isn't earning that much, during statutory paid maternity leave for instance. [/i]
+1
But, by the time she's paid the fees/costs and Corp Tax it'll barely be worth it - from £5k.
Better she get someone who's already a Ltd company to invoice, and then ... 🙂
The idea would be to use some work of my tax allowance. Say Mrs FD gets £5k can that all be paid to me at the 20% bracket, or does she have to attract most of it?
How much does it cost annually to be ltd? I don't mind the paperwork etc, it's just if the financial cost outweigh's any benefit...
So there's no trading in the company ?
30 quid to set up at companies house, accountants fees and possibly insurance on an annual basis. EDIT and corp tax, obvs.
But... PAYE for main time plus Ltd for the overtime sounds a little like disgused employment under IR35. You'd possibly (if caught, etc) need to pay the tax anyway.
But yes, you could be a director too and receive a proportion of the dividend.
Say Mrs FD gets £5k can that all be paid to me at the 20% bracket, or does she have to attract most of it?
And what will you be doing to earn the money?
HMRC will see straight through that - for 5K it's really not worth it. Even if you played all the loopholes paying you would likely save you about £500 in tax which would soon vanish in the costs of doing it.
If she's working for a single business then IR35 regs also come into it.
IR35 is an interesting one. Other colleagues haven't fallen fowl of it, not to say if the IR investigated they wouldn't do.
Mrs FD can decide whether she wants to do the extra work or not.
In the long term she will probably my be off PAYE all together.
Thanks for the advice, plenty to look at, and maybe we need to talk to a tax accountant.
Longer term, does a Ltd Co (with you both as directors perhaps) give wider options? Different model of working perhaps, but not without advantages.
Is the extra income from her PAYE employer?
There is a very good questionnaire on the hmrc on am I ir35 or not, covers things like advertising, losses and a few other things. It clearly identifies most of the disguised employees up front. As for swapping tax free allowances etc. Generally if it sounds like a scam it is...