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Tax implications for PAYE with side business income

I work for a business FT and am about 5k away from paying the higher 40% tax rate.

I'm shortly to launch a business as a co-director that should earn me around £2-5k by the summer.

My question:
1. What tax form(s) will I need to fill in?
2. Shall I take a salary from the company or can I take all profits as a dividend?
3. If my role was instead as company secretary, would my tax status be different?

Any expert help would be greatly appreciated.

Many thanks

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15th Mar 2012 20:18

I forgot to mention - I will continue working for my employer FT under the PAYE scheme, but will run my business on the side.

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By zebaa
15th Mar 2012 22:49

1,2 & 3

1, loads, but it depends on how you want paying. 2, you decide. 3, no.

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15th Mar 2012 23:31

Given that you are a director of the new business a LTD has been formed with all the attendant administration.  Your queries are raised periodically on this site.  An ltd offers certain advantages but there is administration, bottom line; if you want the advantages you should be prepared to buy advice.  You would not try to rewire your house if an electrician sent you a few emails and good advice will pay for itself, bad advice will cost more.

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16th Mar 2012 09:52

Requirements

Hello Mick,

There are various requirements (1) as a director you would need to complete a tax return.

(2) The company would have to prepare accounts etc.

The £5,000 headroom you have before higher rate kicks win will allow you to pay a dividend with no tax liability personally. Remember dividends are grossed up (increased by 100/90) from the amount of cash received to calculate what is included in the SA100.

So if you have £5k headroom, then  you could only draw £4,500.

A  low salary would result in the similar tax charge whilst you are a basic rate taxpayer and the company is paying tax at 20%. Salaries over £7,228 would attract NIC and that is the killer!

As a company secretary things would be no different tax wise.

Anyone can be paid a salary and both directors and company secretaries can be shareholders which entitle dividend payments.

 

It may be better though to leave the company as dormant and trade as a sole trader, especially initially, as there are various expenses which could be offset and the administration is lower.

We could pay your partner (if applicable) a salary to reduce your profits if necessary.

 

Feel free to direct message me if you want some further advice.

Thanks,

Mark

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16th Mar 2012 12:14

@hally993

"(1) as a director you would need to complete a tax return."

Assuming that you are talking about a personal income tax return, this is not strictly true.  There is no legal requirement to file a tax return just because you are a director.  HMRC may choose to issue a tax return to you, in which case you would have to complete it, and you would be required to notify HMRC and obtain a tax return if your combined income did put you over the higher rate threshold.

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By beanz
16th Mar 2012 14:15

earnings/profits & time period

if OP expects to earn 2k - 5k by 'the summer' - wouldn't this equate to 8k to 20k for the financial year, (based on 3 months to summer) & therefore be taxed accordingly (assuming the business continues to generate profit at same rates throughout year) -

If the self employed business only lasted for 3 months then the earnings/profit for taxation would be based on the time period the business was operational or I am looking at this wrong?

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16th Mar 2012 15:00

@ Euan

You do need to complete a Tax Return if you are a director of a company. See the details at the link below:

http://www.hmrc.gov.uk/sa/need-tax-return.htm

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By neileg
16th Mar 2012 15:19

@hkfinancials

Don't believe everything that HMRC tell you. There's no statutory basis for this.

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By BES
05th Sep 2013 10:33

My first post and I have got to admit this is very interesting stuff. And the Government wonder why the country is in a pickle. I know rules are always complex but many mentioned here are just crazy, with loop holes and reasons why it applies to one then not another with almost exact similarities, some seem to change just because your next door neighbour has a dog and its 12 inches high and with a shiny coat.                                                                                                                                                                                                                                                                                                               And to be fair I as an innocent party here I would image what HMRC says goes and this is not always the case. So how would the lay person ensure he/she was getting the right and best advice then? Is there a set qualification to look for or a way of proving and having 100% knowledge that the expert in front of you is telling you the right way to do it even though HMRC say differently?                                                                                                                                    After all is it not the business owner who has ultimate responsibility for their own affairs regardless of advice taken or paid for by the correct professionals ( I mean no disrespect here) 

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