Considering taking on Contract work

Randvegeta

Hi,

I am considering taking on some contract work to 'boost' my earnings.

Currently, I run a small limited company abroad (which pays tax abroad). So this is my source of income and as the company pays tax in the country of registration, I am sending myself a little under the tax free allowance to avoid getting double taxed (the double taxation relief does not apply as it was tax as a corporation).

I do not intend on staying long in the U.K. but I do expect to be here for the next 9 - 11 months.

As such, I have been contacted by a number of companies in the UK asking if I could do some contract work. As the tax free allowance is quite low, I have considered taking up some of these offers.

In particular, a contract job that pays £4,500 /month for at least 4 months. I was wondering if anyone here knows what kind of expenses are tax deductible.

I would establish and operate under a UK limited company and invoice the client through the company.

I do not intend to continue working after this 1 contract is over, which means I should be able to earn at least £18,000 in those four months.

In order to complete the work, I would need a car/Insurance/Petrol (as the work is some 60 miles from my place of residence, and relocation for 4 months is not acceptable). Are these tax deductible? I estimate these costs to run to around £400 /m.

Could I have my GF work for me to handle the books and paperwork. Mainly so we could share the income since she has no job and I will be somewhat responsible for her financially. Lets say, pay her around £7,500 for the year (within the tax free allowance).

I would expect that in this way, the taxable income would be around £1,500. (£18,000 - £1,600 [Running cost of car for 4 months] - £7,475 [GF's pay] - £7,475 [My own Personal Allowance] = £1,500)

I've got to jiggle the numbers around a bit but basically, is that doable?

Oh I would of course not take an income from my overseas business. There are other people currently handling it's operations.

chrismac1

This is roughly doable, although your GF should be doing justifiable work. If she is dealing with third parties such as accountants, agencies, contractors then at least you'd have third party backup in the event of a challenge. Unless your agency is insisting on dealing with a limited company I can't see the purpose in this as it will involve a few hundred quid of extra expense.

chrismac1

Also note that your main bill in a limited company is corporation tax. So the sums become 18,000 minus 1,600 minus 2,408 minus 2,408 = 11,584 times 20% equals £2,316. You'd almost certainly have at least £500 to £700 of other costs to deduct, so corporation tax of around £2,000.

Note 602 per month is the maximum salary payable without paying NI. Note also that I can't see any way you can justify a salary of 7,475 for just 4 months for your GF, hence using 2,408 and not 7,224 in these calculations.

Randvegeta

Hi Chrismac1, thanks for the input once again.

Obviously I would actually expect my GF to do the thing's I would pay her for, but it would seem to be a very generous sum!

The company of which have requested my work prefer to deal with a limited company but are no opposed to dealing with a sole trader.

Okay how about this. I would work as a self-employed contractor operating as a sole trader. I would therefore do self-assesment rather than PAYE or whatever the alternatives are. If I only work for 4 months in the year, surely the money earned in those 4 months would be annualized so it is seen as 18,000 over 1 year (less costs) rather than 18,000 of 4 months (less cost).

As I said, I would only be taking the 1 contract. I don't need the money but doing this would simply mean I don't need to pay double tax for my other sources of income.

chrismac1

The main thing about setting up a limited company is that it takes 3 hours to det one up but much longer to get rid of one. I have a thread on my site for purely this reason, currently striking off 4 companies for clients who went ahead at 100 miles an hour 12 to 18 months ago despite my advice to think things through more carefully.

Submitting limited company accounts and corporation tax returns is best left to qualified people unless you already have a good working knowledge of the Companies Act. For this reason, running a limited company is more expensive.

Randvegeta

chrismac1 wrote: »

The main thing about setting up a limited company is that it takes 3 hours to det one up but much longer to get rid of one. I have a thread on my site for purely this reason, currently striking off 4 companies for clients who went ahead at 100 miles an hour 12 to 18 months ago despite my advice to think things through more carefully.

Submitting limited company accounts and corporation tax returns is best left to qualified people unless you already have a good working knowledge of the Companies Act. For this reason, running a limited company is more expensive.

So perhaps I will stick with working as a sole trader. I don't suppose there are any downsides to doing this?

chrismac1

The main one is unlimited personal liability for the debts of the business. There are others, but not for such a short period.

Randvegeta

I dont expect to rack up any large liabilities... But it's good to know that the travel expenses are deductible.

Cheers!