40% tax payer and business idea

Spendless

Hi- hope someone can help.

Husband works full-time. His salary is slightly under the 40% tax bracket but his compnay car knocks him into it.
He has hit upon a business idea and some people have been asking him to do some work for them, which he would be doing in his own time.

The money he earns from these additional jobs, is there any way round him paying 40% on these additional earnings or not.

In time the business idea he has thought of, might lead to him leaving his job and becoming self-employed. It is not an option at minute for various reasons. One being that we have 2 young children one not yet at school. I don't work and have recently returned to college to gain some admin skills, so I'm not currently in a position to go out and get work should it all go pear-shaped.

cash99

If the business was put into a company both you and you other half could be shareholders and receive the profits as dividends. Any dividends received by you would be taxed as your income. Any profits left in the company would also only be taxed at corporation tax rates (19% upto to £300k profit) , and not 40%. Once the money is taken out you could then be subject to 40% tax, but it does give you more flexibilty over being self employed.

5 or 6 years ago this approach would have worked without any comment from HMRC. Now they are attacking these type of arrangements as tax avoidance. However HMRC are currently losing the leading case ( Arctic Systems) so these arrangements may survive, at least in the short term.

You could also be paid a small salary for administration work for the company / business.

If your OH is serious about doing this then seek professional advice. Tax planning is difficult if not impossible to do after the event.

Chrismaths

If you pay the profits out as dividends, and the income is franked (ie has had corporation tax paid on it), it is paid with a 10% tax credit which satisfies the BR tax liability, and HR pay an additional 22.5%, not 40%. It's slightly more complex than that as it's 22.5% of the gross income (ie income + 10% tax credit) but you get the picture.