Advice on setting up as a consultant (Ltd company, Tax, etc!)

dazzer252

Hi Everyone,

I would welcome some advice on the current position I find myself in and how the most tax / cost efficient way will be to proceed.

I am currently employed in the public sector and, taking into account pension contributions and overtime, my earnings are just below the 40% tax threshold. All my tax is PAYE by my current employer and I do not currently have to do a self assessment.

I have been approached to work in addition to this as a consultant for another firm who will pay me a daily rate / commission for the work I undertake. My best estimate at the moment is that the turnover for year 1 won't exceed £5000. I will be working from home and using my own car, phone, etc for this work and paying my own expenses.

What is the best way for me to proceed with this opportunity that makes the best use of this income and minimises the tax I will have to pay? I don't need to draw a salary on this income so would be happy for it to remain in "the company" and pay it out in the future. The company I will be contracting for has suggested I set up as a limted company as this may be more tax efficient but I have no knowledge of running a company, book keeping, tax returns etc so would more than likley have to use an accountant to do this (another cost)?

I know that I won't need to be VAT registered with this level of income and can't see this raising to much more than £10'000 per year in years 2-3.

So....

• Should I set up as a Ltd company and if so what approx tax will I end up paying on this additional income
• Should I go to a local accountant to set this company up and ask them to manage the accounts or use one of the on-line companies e.g cruch
• Will this income put me over the 40% income tax threshold and therefore make my wife loose her child benefit from 2013?

Thanks for any help and advice

Darren

steve1980

You're better to speak to an accountant. Most offer a free 30 minute consultation.

You'd pay 20% on your self employed income anyway, the VAT threshold is £64,000 so you're pretty safe on that front.

You get a tax free amount of £7570 per year so add this to £34,600 (I think) to get £42,170 before you start paying 40%

Seraphim

As Steve says, it's worth having a chat with an accountant and most will offer their first consultation free.

dazzer252 wrote: »

Should I set up as a Ltd company and if so what approx tax will I end up paying on this additional income

You will need to pay corporation tax (is it 20% now?) on any profits that you make. If the money sits in the company, you will not incur any additional income tax - this is where an accountant comes in handy as they can explain how to take money out of the company as it's often more (tax) efficient to take it out as dividends rather than as salary, dependent on how much money you earn per year.

dazzer252 wrote: »

Will this income put me over the 40% income tax threshold and therefore make my wife loose her child benefit from 2013?

As above, no, not if you don't remove the money from the company.

For me personally, I use an accountant because of all the paperwork that goes with running a Limited Company. There are several obligations you must meet e.g. annual accounts being filed at Companies House, and I just find it easier for my accountant to remember when these things are due and to send me the bits of paper I need to sign.

I don't know what your wife does but if she can genuinely help with the company in any way (for example do all the admin and accounting for the company) she is entitled to take a wage and/or dividends and this may help you remove money from the company without taking you over the 40% tax bracket.

Horace

I would check your contract of employment too because you may find that you are not able to set up as a consultant in the same field as the one you are working in at the moment.