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How do I pay me if I am employed & self employed?

How do I pay myself if I am employed and also self employed?

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Hi there,

I am employed on a part-time basis and earn gross £12,285/year

I have also set up a limited business on the side where I can afford to pay myself £6800 gross/annum after expenses.

How do I go about paying tax on this? I'm assuming I just pay 20% on anything I earn after £12500 in addition to my employed role? I.e. the first £215 of self employment is free and then 20% on the remaining £6585?

I already pay NI through my employed job.

Replies (44)

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By Daybooks
15th Jun 2019 19:13

%

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By Tim Vane
15th Jun 2019 20:16

Luckily it’s Self Assessment so you can assess yourself for tax and pay it twice a year.

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Replying to Tim Vane:
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By Daybooks
16th Jun 2019 18:28

Sorry I’m not sure I follow

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By doubletrouble
15th Jun 2019 20:41

So are you self-employed or are you an employee of the Ltd Co?

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Replying to doubletrouble:
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By Accountant A
15th Jun 2019 21:23

doubletrouble wrote:

So are you self-employed or are you an employee of the Ltd Co?

Let's not get bogged down in the detail!!

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Replying to doubletrouble:
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By Daybooks
16th Jun 2019 17:25

Apologies - an employee of the limited company

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Replying to Daybooks:
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By legerman
17th Jun 2019 13:07

Daybooks wrote:

Apologies - an employee of the limited company

So not self employed then! In all seriousness I strongly suggest you need an accountant, and seek their advice on the best way to extract money from your Company. That advice alone could save you a couple of hundred quid, and then there are the tax return and companies house return to complete. It's a fairly safe bet you won't know how to do this yourself.

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By Accountant A
15th Jun 2019 21:24

A couple of years ago, you posted that "I'm not an accountant. I have qualified in bookkeeping but have no actual experience. When I refer to my 'client' I am talking about my friend".

What you need is an accountant.

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Replying to Accountant A:
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By Daybooks
16th Jun 2019 17:26

I plan to use an accountant at year end. I just wanted a rough idea of how much to set aside for tax in the meantime

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Replying to Daybooks:
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By Accountant A
16th Jun 2019 17:34

Daybooks wrote:

I plan to use an accountant at year end. I just wanted a rough idea of how much to set aside for tax in the meantime

Well can I suggest that you appoint an accountant now (or indeed before you set up a limited company ...) because that may give you an opportunity to pay less tax than you otherwise would.

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Replying to Daybooks:
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By Tax Dragon
16th Jun 2019 17:39

£1,360

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Replying to Tax Dragon:
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By Daybooks
16th Jun 2019 18:22

Thanks. How did you reach the figure if you don’t mind me asking?

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By Tax Dragon
15th Jun 2019 23:35

Respondents have interpreted your question in different ways. If you want a reliable answer, can you explain a bit more what you mean by:

Daybooks wrote:

I can afford to pay myself £6800 gross/annum after expenses.

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Replying to Tax Dragon:
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By Daybooks
16th Jun 2019 18:27

Well in one year £7800 will be paid into the company by one client. After running costs, the company is left with £6800 which I would like to pay to myself as a wage if that’s the most sensible option

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By JoF
16th Jun 2019 07:54

How are you paying yourself from the limited co?

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Replying to JoF:
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By Daybooks
16th Jun 2019 18:29

This is what I’m trying to figure out. PAYE?

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By lesley.barnes
16th Jun 2019 08:29

Limited co or self employed. It makes a big difference as to how you are taxed.

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Replying to lesley.barnes:
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By Daybooks
16th Jun 2019 18:30

Limited co

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RLI
By lionofludesch
16th Jun 2019 10:40

Is a limited business one which doesn't do much trade ?

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Replying to lionofludesch:
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By Daybooks
16th Jun 2019 18:32

Just started out

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By lesley.barnes
16th Jun 2019 19:25

You really need to speak to your accountant before you do anything. Once you've gone down one route if it's not the most tax efficient way it can't be undone without a Tardis. I don't know enough about how you've structured your ltd company but can you not declare dividends rather than PAYE. Only you know your circumstances we don't have the full picture.

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Replying to lesley.barnes:
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By Matrix
16th Jun 2019 19:57

On the facts provided dividends would be sub-optimal.

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Replying to Matrix:
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By Daybooks
16th Jun 2019 20:14

So you think PAYE would be best? If so then should I follow my (very basic) formula shown in my original question? Ie 20% of everything over the minimum tax threshold?

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Replying to Daybooks:
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By Matrix
16th Jun 2019 20:44

It depends on the facts. I would certainly take advice now on whether the limited company is necessary, at that level of income I would suggest not. Unless you had to set it up for this contract, in which case there could be other issues such as IR35.

But in answer to your question, I would recommend approx £700 a month salary and the rest dividends (paid out of profits after tax). After putting aside approx £1,000 for limited company compliance fees.

The company would use a BR tax code, so yes tax would be deducted at 20% by the company from your pay.

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Replying to Matrix:
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By Daybooks
16th Jun 2019 20:54

Thank you so much

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Replying to Daybooks:
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By Tax Dragon
16th Jun 2019 22:40

There you have it in a nutshell:
DIY - take home £6,800 at the end of the year;
Invest £1,000 on an accountant and you can bank £700 a month and still leave room for dividends.
Your choice.

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Replying to Matrix:
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By atleastisoundknowledgable...
16th Jun 2019 22:33

Matrix wrote:

But in answer to your question, I would recommend approx £700 a month salary and the rest dividends (paid out of profits after tax). After putting aside approx £1,000 for limited company compliance fees.

Company income is only £7,800.

Also, no-ones mentioned and the OP hasn’t accounted for possible CT ...

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Replying to atleastisoundknowledgable...:
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By Matrix
16th Jun 2019 22:48

The salary is deductible so if the profits (before salary) are less than £700 a month then there wouldn’t be any corporation tax. I had understood (eventually) the question was regarding running the company PAYE scheme, which obviously will need to be set up to process the pay and tax.

I think the OP’s accountant should take it from here.

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Replying to Matrix:
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By Daybooks
16th Jun 2019 23:35

Perfect response thank you so much. I have an idea of how much to keep aside now. I will leave the rest to an accountant.

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Replying to Daybooks:
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By Tax Dragon
16th Jun 2019 23:58

How different is your answer now from £1,350? (I know I said £1,360 before but that was a typo.)

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Replying to Tax Dragon:
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By Daybooks
17th Jun 2019 00:13

Pardon? I haven't got a different answer now? Was just after a rough idea

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Replying to Daybooks:
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By Matrix
17th Jun 2019 00:09

You don’t set the PAYE aside. The company pays you the net amount and pays over the tax deducted to HMRC and makes monthly payroll filings in the same way as any other employer. This is why you need an accountant now.

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
17th Jun 2019 07:59

atleastisoundknowledgable... wrote:

Matrix wrote:

But in answer to your question, I would recommend approx £700 a month salary and the rest dividends (paid out of profits after tax). After putting aside approx £1,000 for limited company compliance fees.

Company income is only £7,800.

Also, no-ones mentioned and the OP hasn’t accounted for possible CT ...

There won't be any CT if he pays himself £700 a month if his gross income id £7800 and his expenses are £1000.

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By penelope pitstop
17th Jun 2019 01:18

Complicated!

Very complicated!

It could take reams of pages to explain the tax and NIC position in full.

Unfortunately, as an accountant, I need to earn some money to make ends meet by answering similar questions to this to my fee-paying clients.

Sadly you may have to wait for an accountant who has little to do to explain all the nuances your question poses.

Alternatively, you could engage a local accountant who, for a small fee, will do a sterling job explaining all the intricacies to you.

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By paul.benny
17th Jun 2019 10:37

There is plenty of general information available on the government website:

https://www.gov.uk/browse/business/setting-up

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