Self assessment on second income
Discussion
I currently work full time as PAYE, and I have been approached by a company in the states to assist on a 3 month project. It’s working in the same technology and rates/hours have been agreed etc. They also offered other benefits (health and dental) but these have been reflected in my rate. My question is regarding the payments for the contract, they have requested to transfer payments into my UK bank account in USD. I presume they will use a third party to exchange to pounds. Is this the best method or are there any other viable options? This is also my first contract based role and I haven’t got enough notice to set up a LTD. If I receive these payments into my current account, can I just set it aside for a self assessment at the end of the financial year? As you can probably work out I am very naive to the whole process so any other tips would be greatly received.
It would probably have been better for you to have agreed a rate in GBP rather than USD because you are now going to be exposed to fx fluctuations (so your GBP income may rise or fall with the exchange rate).
Almost all bank accounts will receive the USD and exchange it at the bank's prevailing fx rate (probably also making a small charge for the transaction too). Some banks or accounts may offer better fx rates or lower charges, but the difference would likely be negligible. Probably best to contact your bank to ensure your account can receive foreign currency deposits.
You'll need to register for self assessment with HMRC, and you should set aside a healthy percentage of that income ready for paying the tax on it at your marginal tax rate - I'd play safe and put half of it aside. Your first self assessment and tax bill will be due January of the year after (so if you start receiving income before April 5th 22, self assessment will need to be submitted and paid Jan 23).
Setting up a Ltd company is likely more tax efficient but also a bit of a faff, and given you've already set the contract up in your own name I'm not sure the effort and admin would be worthwhile - best to have a talk with a local accountant
Almost all bank accounts will receive the USD and exchange it at the bank's prevailing fx rate (probably also making a small charge for the transaction too). Some banks or accounts may offer better fx rates or lower charges, but the difference would likely be negligible. Probably best to contact your bank to ensure your account can receive foreign currency deposits.
You'll need to register for self assessment with HMRC, and you should set aside a healthy percentage of that income ready for paying the tax on it at your marginal tax rate - I'd play safe and put half of it aside. Your first self assessment and tax bill will be due January of the year after (so if you start receiving income before April 5th 22, self assessment will need to be submitted and paid Jan 23).
Setting up a Ltd company is likely more tax efficient but also a bit of a faff, and given you've already set the contract up in your own name I'm not sure the effort and admin would be worthwhile - best to have a talk with a local accountant
Edited by Halitosis on Saturday 15th January 09:42
If you want to set up a Ltd company it can be done in hours, as can most things needed to trade as a Ltd company. The only thing that takes time is VAT registration, but you can trade without that. You may not go over the threashold though.
It's fine to do it through SA though (and simpler).
It's fine to do it through SA though (and simpler).
The advantages of operating through a limited company are much reduced compared to the situation in years gone by.
If the sales/fees generated by this "self employed" activity (i.e. before deductions for allowable costs) is less than (say) £40,000, I would suggest that setting up a company may not be worth the effort involved. As has been said, setting up a company can be quite easy these days. However, running a company, keeping on top of the filing requirements, maintaining the company and planning how you extract personal money from the company on a regular basis as tax efficiently as possible, can be more complex.
And closing a company down can, sometimes, be quite a bit more complex than setting it up.
If the sales/fees generated by this "self employed" activity (i.e. before deductions for allowable costs) is less than (say) £40,000, I would suggest that setting up a company may not be worth the effort involved. As has been said, setting up a company can be quite easy these days. However, running a company, keeping on top of the filing requirements, maintaining the company and planning how you extract personal money from the company on a regular basis as tax efficiently as possible, can be more complex.
And closing a company down can, sometimes, be quite a bit more complex than setting it up.
Gassing Station | Finance | Top of Page | What's New | My Stuff