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Where Taxpayers and Advisers Meet

Tax for Ltd when still working full time

dcs
Posts:1
Joined:Wed Apr 18, 2018 11:11 am
Tax for Ltd when still working full time

Postby dcs » Wed Apr 18, 2018 11:18 am

Hi,

I have a quick question regarding tax on some self employed income that I earn on top of my normal full time employed role.

As I am in the higher tax bracket any additional income declared as self employed will be taxed at 40% plus NI contributions. Would this be more efficient if I formed a limited company despite not being able to use the tax free personal allowance as this is used by my full time employment?

Also, would it be possible to name my wife as a shareholder and essentially pay her the profits? I would presume that as the work is with the company it doesn't matter who does the work and that way we would be able to take advantage of her tax free personal allowance?

Any guidance would be much appreciated.

Thanks.

TaxAdviser2018
Posts:26
Joined:Tue Apr 17, 2018 1:34 pm

Re: Tax for Ltd when still working full time

Postby TaxAdviser2018 » Thu Apr 19, 2018 9:29 am

There are a number of issues that you need to consider in respect of forming a company.

You will need to prepare company accounts and file a company tax return with supporting computations.

If you require the income as part of your living expenditure, you would need to extract the profits from the company as a dividend or salary and this gives rise to income tax and NICs (in respect of a salary) on you.

Therefore there may be a net cost to you for structuring your other income through a company.

Are you allowed to undertake other work under your current contract of employment and do you require indemnity insurance for the services you perform?

You can set up a company with your wife as a shareholder. You may wish to consider two different classes of shares so that the company can declare a dividend for the class held by your wife, whereas the company would not need to declare a dividend in respect of the class of share that you own.

Your wife could receive a salary from the company commensurate to what role she is employed to undertake for it. As a minimum, she could be paid a salary of circa £8,400 without the company (as her employer) or your wife being liable to NICs and still receive the credit for qualifying for the state pension.

Both you and your wife can each receive dividends up to £2,000 per tax year without paying income tax and therefore if neither of you receive any dividends, you may wish to consider utilising this annual dividend allowance.

There are other tax planning aspects you could consider where you structure the additional activity through a limited company. For example making pension contributions for you/your wife. The company would benefit from tax relief on the amount contributed and income/gains in the pension fund would grow tax free.


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