How do I make this work?

[f1nn]

Okay, let's get the facts out of the way. I do not have any facial hair, nor multiple directorships. I would say I am more built for comfort these days than power. My BMW is more 318 than 335, and I'm sorry to say it is not even remapped.............

My current employment is PAYE and realistically I expect this to pay me between 45-50k this tax year.

I have been approached by a company I used to work with to carry out some consultancy on a product they are developing, and have offered to secure my services at a rate of 12k a year, invoiced monthly, on a self employed basis.

I am more than happy to do this, and there is nothing in my contract of prevents this. I will be able to carry out this work during evenings and weekends. It is a completely different field to my employment, so I see no conflict of interests.

My question is, how do I work this to see maximum financial benefit?

Thanks in advance for any advice.

[Griff Boy]

Firstly, speak to your employer to make sure it is alright, do not assume! It's not worth losing a 60k job for a 12k one! Also as far as I know the 12k will go on top of you paye declared income, and you'll be paying a substantial amount of tax on it. It may not be as worthwhile as you might first think....
Secondly, speak to an accountant, they will put you straight, rather than an online crowd..... :-)

[BE57 TOY]

If you set up a limited company you could withdraw the money tax free as a basic rate tax payer, but your a higher rate tax payer so that wouldn't work and you'd be taxed at 32.5% (and the co. at 20% for Corp Tax).

Probably best therefore to just declare it as self employed income on a tax return and have to pay resulting PAYE at 40%. You can still claim your expenses.

[worsy]

I'm not an accountant but.....

Does your wife work?
Is there an opportunity to split the income?
How is your pension contribution, would 12k help boost that, as that would be tax free?
Is this likely to be an ongoing piece of work over several years?
Are there any expenses?
Will you need Professional Indemnity?

[f1nn]

Hi, thanks for the advice so far everyone.

Wife works, part time at the moment but will increase her hours in September when our son goes to school.

My "client" would be prepared to split payment however was beneficial, within the legal and business constraints of his business.

It's likely to be an ongoing situation.

Thanks

Mike

[f1nn]

I won't need any PI, and any expenses will be covered by the "client" as it were.

[deckster]

You need to be...careful, and informed. I'd strongly advise you look up some of the first-timers guides on somewhere like www.contractoruk.com (slanted towards IT contracting, but the principles apply across the board). At the very least, you need to understand the options and the differences between running a Ltd company vs being self-employed vs using an umbrella company. Also you (and your client) need to be very clear on how to make sure that you are genuinely self-employed - it's not a matter of choice, it's all down to the working relationship and HMRC will be more than happy to charge a lot of back tax if they think you've got it wrong.

I'd be sceptical about the 'no PI' statement. It's all about protecting yourself - imagine, for a moment, that you actions directly cost your customer £££££ (in IT, for example, if some of your code brings down a production system for a week). Particularly if you don't have the protection of a Ltd company, you are potentially personally liable if the client decides to chase you - and don't think it won't or can't happen. PI isn't expensive and definitely falls into the category of 'be stupid not to'.

Finally - please do make sure that it's worth it. 12k a year may sound a lot for a 'bit of consultancy', but after you've paid tax, two lots of NI, potential accountancy fees, PI etc. you may well end up wondering why you're spending your evenings and weekends working for what turns out to be a rather low hourly rate.