Consultancy as a second income

[Basil]

I am employed in education in the public sector. Recently I have begiun to undertake, during evenings and weekends, consultancy and performance management assessments. The income from these activities is paid gross and I am responsible for paying income tax myself. At the moment I am earning less than £4000 a year through this route, but hope to increase this when I take early retirement from the 'day job' in five years time. I am a higher rate tax payer and at present include my consultancy earnings on the self assessment form. Could you suggest ways in which I could reduce my tax bill for the consultancy work? For the consultancy work I operate from home - are there any expenses that are deductable for this?

[Neale]

One consideration might be to incorporate. This would theoretically allow you to benefit from the 0% rate of Corporation tax on the first £10000 profits and then distribute the profits when you are a lower rate taxpayer without further taxation. There are many considerations, including the need to file annual returns at companies house (allow on the turnover envisaged you do not need an accountant).

Mosst importantly planning to ensure you are not caught by IR 35 (which effectively treats you as an employee of the contractor when providing services through a company) is essential before choosing this route. The Revenue's web site has a fair amount of detail.

neale@coules.com

[peterscheale]

I am in the same situation. I guess it is too late to incorporate for last years tax return! I only had one consutlancy last year, but hope to build up more this year. How much can one offset in terms of use of home facilities, travel costs, marketing, purchase of captial equipment such as computer, scanner etc against the income? I have heard that £2 - £5 per week for rent of space is about the acceptable limit.