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Full time higher tax PAYE and Limited company?

Full time higher tax PAYE and Limited company?

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All, I have worked as a higher rate PAYE employee for the last 10 years. I have recently stopped working and I have been offered some part time business development consultancy work outside IR35. It is likely to pay me £1000 - £2500 a month for probably 6 months with low amount of expenses (it could last longer than 6 months). I am also looking for a new full time job (which may be inside or outside IR35), but I will hopefully continue to be a higher rate tax earner still through my full time work. If I plan to find higher rate tax work as my main job, my questions are:

1) Is it still more tax efficient for me to set up a limited company for the part time business development consultancy work?
2) If I have exceeded my personal tax allowance already through my full time job is it it most tax efficient to only pay myself dividends in the Limited company? If so, why is this if above the £2k tax free dividend I will pay 19% corporation tax and 32.5% dividend tax (51.5% compared to 40% PAYE)?
3) If I am better off not paying myself a salary from the ltd company, is there any advantage/disadvantage to signing myself up to be paid PAYE through the company? Will it just give me extra flexibility if needed for no cost?

Thanks,
Sarah

Replies (16)

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By David Ex
02nd Nov 2021 15:53

swalsh1979 wrote:

It is likely to pay me £1000 - £2500 a month for probably 6 months

Lucky old you. Looks like now’s a good time to engage the services of an accountant, although they do charge fees, strangely.

You’ll find someone here:

https://www.icaew.com/about-icaew/find-a-chartered-accountant

Thanks (2)
RLI
By lionofludesch
02nd Nov 2021 15:57

A couple of misconceptions. Your £2000 tax free dividend is only tax free if you're a basic rate taxpayer. Your company pays the 19% Corporation Tax and you pay dividend tax of 32½% (you imply that all of this will be at higher rates) of the other 81%. Hence, 19% plus 32½% does not, in this instance, equal 51½%; more like 45%. But this is a gross oversimplification. You don't have to withdraw all the profits as dividends.

Nevertheless, your affairs are quite complex - and, apparently, may change.

You need tailored advice.

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Replying to lionofludesch:
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By More unearned luck
02nd Nov 2021 18:03

"Your £2000 tax free dividend is only tax free if you're a basic rate taxpayer."

Your software is faulty if it denies your HR & AR clients the DA.

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Replying to More unearned luck:
RLI
By lionofludesch
02nd Nov 2021 18:13

More unearned luck wrote:

"Your £2000 tax free dividend is only tax free if you're a basic rate taxpayer."

Your software is faulty if it denies your HR & AR clients the DA.

It'll be faulty if it doesn't steal some basic rate band too.

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Replying to lionofludesch:
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By swalsh1979
02nd Nov 2021 18:40

Thank you. I didn't realise this. :)

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Replying to lionofludesch:
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By swalsh1979
02nd Nov 2021 18:40

Thank you. I didn't realise this. :)

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Replying to lionofludesch:
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By Paul Crowley
02nd Nov 2021 19:18

+1

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Replying to lionofludesch:
By Duggimon
03rd Nov 2021 09:39

lionofludesch wrote:

It'll be faulty if it doesn't steal some basic rate band too.

You said this in another thread the other day as well and I don't know whether it's you or me that's got it wrong.

So far as I know, if the basic rate band is fully utilised by employment income, the £2K dividends at 0% do not use any of the basic rate band.

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Replying to Duggimon:
By SteveHa
03rd Nov 2021 10:27

Duggimon is correct. The first £2,000 of dividends is chargeable at 0%, regardless of the rate band that they fall in. So salary of £51,000 and £2,000 dividends would charge the salary at BR, with a couple of £100 at 40%, and then dividends at 0%.

Zero rated dividends only eat into the rate band that they would otherwise be taxed in.

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Replying to Duggimon:
RLI
By lionofludesch
03rd Nov 2021 11:02

Duggimon wrote:

lionofludesch wrote:

It'll be faulty if it doesn't steal some basic rate band too.

You said this in another thread the other day as well and I don't know whether it's you or me that's got it wrong.

So far as I know, if the basic rate band is fully utilised by employment income, the £2K dividends at 0% do not use any of the basic rate band.

You're right, Duggi. It depends far more than I implied.

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By Leywood
02nd Nov 2021 16:06

You get paid for doing the consultancy work.

So do Accountants.

This is not a site for free tax advice.

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By Truthsayer
02nd Nov 2021 17:15

'I have worked as a higher rate PAYE employee for the last 10 years.'

In that case, you can well afford to pay for accountancy advice.

Thanks (6)
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By Wanderer
02nd Nov 2021 18:45

https://www.ukbusinessforums.co.uk/threads/higher-rate-tax-paye-employee...

Has previously been advised to speak with an accountant, more than once, but decided to ignore that advice & come here.

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My photo
By Matrix
02nd Nov 2021 18:56

You wouldn’t save income tax by incorporating, you save NI.

However there are many other benefits such as perception, limited liability, timing of profit extraction, exit strategy etc. Your engagers may not give you an option. I don’t see why you wouldn’t set up a PAYE scheme.

All this comes at a cost: Director’s responsibilities and obligations and professional fees to meet those obligations. I would get bespoke advice from the outset.

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By Paul Crowley
02nd Nov 2021 19:27

Please also remember NI
It is not tax, just a tax like thing

Get a chat with an accountant
He will ask lots of questions, which will have follow up questions depending what you answer
Emails and forums can only gloss over the surface
There are more issues than just tax (and NI)

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By AndyC555
03rd Nov 2021 08:57

As a politician once said, the answers to your three questions are 'yes', 'yes' and 'no' but not necessarily in that order.

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