Do I need to set up or buy a (dormant) business?
Discussion
Hello,
I have an opportunity to earn some useful extra money. This would not be my main source of income, but additional to my day job (i.e. weekend work and the occasional weekday work.) Payment is via invoice, i.e. I state the dates worked and they send me a cheque ( or more likely BACS).
The money will end up in my bank savings account, I am disciplined enough to save it until the tax man wants his take at p60 time. If I do it this way I will end up paying 40% tax on anything earned. I suspect this work will make me about £6k pa.
Is there a legal advantage in having a VAT registered company - i.e. reclaiming mileage, or VAT on my own racing expenses? Or should I just deal with it as explained. is there anything else I can do to reduce the tax burden?
tia,
I have an opportunity to earn some useful extra money. This would not be my main source of income, but additional to my day job (i.e. weekend work and the occasional weekday work.) Payment is via invoice, i.e. I state the dates worked and they send me a cheque ( or more likely BACS).
The money will end up in my bank savings account, I am disciplined enough to save it until the tax man wants his take at p60 time. If I do it this way I will end up paying 40% tax on anything earned. I suspect this work will make me about £6k pa.
Is there a legal advantage in having a VAT registered company - i.e. reclaiming mileage, or VAT on my own racing expenses? Or should I just deal with it as explained. is there anything else I can do to reduce the tax burden?
tia,
Edited by Jerry Can on Thursday 7th August 16:58
Edited by Jerry Can on Thursday 7th August 16:59
RichwiththeS2000 said:
Can you not set up a business bank account, pay yourself in dividends to cut the tax dramatically?
Kinda need a business to invest in, in order to extract dividends...and OP, you don't need to have a company in order to register for VAT, but at the sort of turnover you're talking about I think the additional (time) overheads of doing VAT returns would eliminate the incentive for doing the extra work.
Even if you did manage to extract dividends, anything over the 40% threshold is still taxed at that rate.
I'd say don't bother with the limited company route, for the relatively small amount extra you might save in tax, you'll spend in accountants fees, and on the amount you're taking about, the difference will be negligible.
You can put certain expenses against your additional income, mileage for instance, plus in some circumstances you can claim either a food allowance, or claim back food costs.These two things might help keep you under the higher rate of tax threshold.
I'd say don't bother with the limited company route, for the relatively small amount extra you might save in tax, you'll spend in accountants fees, and on the amount you're taking about, the difference will be negligible.
You can put certain expenses against your additional income, mileage for instance, plus in some circumstances you can claim either a food allowance, or claim back food costs.These two things might help keep you under the higher rate of tax threshold.
Super Slo Mo said:
Even if you did manage to extract dividends, anything over the 40% threshold is still taxed at that rate.
I'd say don't bother with the limited company route, for the relatively small amount extra you might save in tax, you'll spend in accountants fees, and on the amount you're taking about, the difference will be negligible.
You can put certain expenses against your additional income, mileage for instance, plus in some circumstances you can claim either a food allowance, or claim back food costs.These two things might help keep you under the higher rate of tax threshold.
my main job takes me above the 40% tax threshold anyway. I can see it being relatively complicated at tax returns time, declaring the second income, but I wonder if I can claim the mileage? I think I will suck it and see for the first year, and then see what to do next? I'd say don't bother with the limited company route, for the relatively small amount extra you might save in tax, you'll spend in accountants fees, and on the amount you're taking about, the difference will be negligible.
You can put certain expenses against your additional income, mileage for instance, plus in some circumstances you can claim either a food allowance, or claim back food costs.These two things might help keep you under the higher rate of tax threshold.
It used to be that if you are PAYE with a company, even if you set up a Ltd company, you still have to pay the same rate of tax as on your PAYE. So there was no advantage at all, bar the VAT if your turnover was sufficient. It may have changed but that was how it was five or so years ago.
Jerry Can said:
my main job takes me above the 40% tax threshold anyway. I can see it being relatively complicated at tax returns time, declaring the second income, but I wonder if I can claim the mileage? I think I will suck it and see for the first year, and then see what to do next?
It's not too complicated to do the tax returns, essentially you put down your income after allowable expenses. You need to find out what those are of course. If you are already a 40% taxpayer through the salary you receive from your main employment, then it s obvious that any additional PERSONAL income you generate elsewhere will be subject to 40% tax as well - perhaps even 45% tax if the income is high enough.
That would definitely be the case where you are running a self employed sole trader activity.
You would also be likely to have to pay Class 2 and 4 National Insurance - although if you are paying the maximum Class 1 NI in your employment you can apply to defer Class 2 and 4 from, self employment.
If you set up a limited company, you will not pay a single penny of Income Tax IF you do not extract any money from the company for yourself. You will only be subject to INCOME TAX if you withdraw money in the form of salary or dividends. You CAN withdraw money in the form of legitimate expense claims.
You can also withdraw money from the company tax free if you had to inject any cash or provide other assets (such as plant and machinery) to the company on start up.
If the company makes any sort of profit, it will pay 20% Corporation Tax on the profits up to profits of £300,000.
VAT should not come into the equation unless the sales generated by the business (whether a sole trader or a limited company) is likely to exceed £83,000 over a 12 month period.
That would definitely be the case where you are running a self employed sole trader activity.
You would also be likely to have to pay Class 2 and 4 National Insurance - although if you are paying the maximum Class 1 NI in your employment you can apply to defer Class 2 and 4 from, self employment.
If you set up a limited company, you will not pay a single penny of Income Tax IF you do not extract any money from the company for yourself. You will only be subject to INCOME TAX if you withdraw money in the form of salary or dividends. You CAN withdraw money in the form of legitimate expense claims.
You can also withdraw money from the company tax free if you had to inject any cash or provide other assets (such as plant and machinery) to the company on start up.
If the company makes any sort of profit, it will pay 20% Corporation Tax on the profits up to profits of £300,000.
VAT should not come into the equation unless the sales generated by the business (whether a sole trader or a limited company) is likely to exceed £83,000 over a 12 month period.
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