Web design for extra income, should setup SB?

Slaine_43

Hi,
Thanks for the advice.

I know its very competitive out there especially now during the recession. I dont think I explained myself very well tho.

What I'm trying to establish is whether i would be better off becoming self employed for additional work I do outside of my 'normal' job (not necessarily doing work for an agency). I have the opportunity to carry out other types of work which pays around £6-8K a year. My concern is that as I am nearly into the high rate tax band for my normal job, (£32k) would the majority of income I earn, outside of this, be taken by the tax man.

My query is what % of this would go to the tax man under a self employed status compared with if I were to set up a limited company and pay myself a salary/dividends etc. I'm aware the set up and running costs can be higher than SE but I dont know enough about this to make a firm decision. My main query is at what point does it become tax efficient to set up a limited company versus just remaining self employed?

I do intend to speak to an accountant but i want an idea of the best course of action before I go.

Thanks for any help given.;)

Rolo_Tomasi

You will pay tax at 20% of the additional income until your total income reaches the higher rate level which, assuming you have no benefits in kind is currently just over £41,000. Therefore if your additional income will be £6k - £8k then operating as a Limited company does not have any tax saving benefits. Companies do have other benefits - notably the limited liability of the owners so this is something you would need to consider.

As a sole trader, in addition to the tax you will also be liable to pay national insurance. There are two types - Class 2 national insurance is £2.40 per week and is paid by every self employed person with more than £5075 of profits a year and class 4 nic is due at 8% of profits above £5715.

Slaine_43

Thanks for that. I think I have an idea now what my options are.

PlutoinCapricorn

Slaine, https://www.businesslink.gov.uk is a good place to start.

The usual advice on MSE is to start as a Sole Trader and change to a limited company only when the business takes off. In your case, it is not so simple. Even though you are taxed on your profit not income as a sole trader, paying the higher rate of tax may not be worthwhile. You have already realised that money saved by incorporating might be lost on company setup and running costs.

You can get free workshops and advice from the above org, they will help you to decide.