Hi
I work in industry and have been offered a small freelance contract initially for 10 months circa £400 per month.
As a higher rate tax payer (just), is it worthwhile setting up a company for this work? I'm unlikely to take on further contracts.
Thanks.
Replies (4)
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Is it worth it? From a CT and income tax point of view it would probably be neutral i.e. assuming you have £4k of income and no costs you would end up with £2,400 net assuming dividends were taken. Below the Class 4 NIC limit so nothing to save there. The only advantage is you might get the after tax profit out of the company as a capital distribution saving you £800 in tax using the above assumptions.
IMHO setting up a Ltd Co for that would be more trouble than it's worth. Sole trader much simpler.
no/little saving
The main saving from using a limited company comes from not having to pay NI compared with the alternative of sole trader.
However in your case:
1) Your sole trader profits are too low to trigger NI.
2) Even if they were, you could apply for self employment NI deferral as your employment income probably already takes you close to the maximum NI payable anyway.