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 (33)
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So are you self-employed or are you an employee of the Ltd Co?
Let's not get bogged down in the detail!!
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.
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.
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.
Respondents have interpreted your question in different ways. If you want a reliable answer, can you explain a bit more what you mean by:
I can afford to pay myself £6800 gross/annum after expenses.
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.
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.
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.
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 ...
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.
How different is your answer now from £1,350? (I know I said £1,360 before but that was a typo.)
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.
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.
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.