Tax efficient second earnings.

techdojo

** SORRY FOR THE CROSS POSTING, I originally posted this in the employment section but it got no response so I thought I might have better luck here... **

Hi there,
I'm after a bit of advice from any tax / money savings experts, firstly let me describe my situation.

I currently work full time and pay tax PAYE (I'm just in the 40% bracket if that makes a difference), as a way of earning extra funds I'm considering taking on a second job as a software developer / consultant which I intend to treat as a second employment.

The thing is that I'm not relying on any of the cash from the second employment and I'd actually like to try and lock away any / all profits / cash generated as a kind of long term savings (bit of a retirement nest egg that kind of thing).

My wife and I have long talked about the idea of "buy to let" holiday accommodation and I was wondering would it be possible for one business (the software development / consultancy side) to be used to "bank roll" a different business (or even a different "department" of the same business) i.e. generating the funds required for a mortgage deposit for the purchase of a holiday let.

The idea would then be to reinvest profits in to building up a property portfolio which would eventually return an income several years in the future (or if any of the properties were ever disposed of).

Is this possible? Is this legal? any advice greatly appreciated.

Thanks in advance

Jon...

Mistral001

If you earn money you pay tax on it. What you are talking about is tax evasion which is illegal. You might as well ask for advice on the best way to blow a safe.

accountingbod

correct me if i am wrong but if you did not pay yourself out of this company then you would not be paying tax on the income side. However, any profits the company makes would be taxed so you would still suffer taxation at this point from the business side and then further taxed on any dividends/payments received from that business.

There are special rules on holiday let homes that need deeper discussion with an accountant before making any decisions. There are several rules that need to be met in order to make the definition of a property bought to let (Investment) and a property bought for business purposes (revenue based).

Talk to a tax advisor.

InsideInsurance

Speak to an accountant for proper advice, most give an initial free 30 minute session.

First of all you need to decide what type of formation you are going to be using, are you actually talking about setting up a company (eg a Ltd) to handle the second side, in which case AccountingBod is correct re profits -v- income. Or are you intending to deal with it all as a sole trader in which case all profit is taxable as personal income irrespective of if you see it as your money or not.

fguk

Mistral001, you jumped the gun a little on "tax evasion".....

OP, a business can certainly do what you ask, but it will be the business that is investing in the Holiday Let, therefore owning it, not you personally (if you are Ltd company), so whilst you will be able to re-invest those monies received, there may well still be tax to pay.

Certainly as you personally try and draw any money out of the business (whether its your software dev, consultancy, or holiday let earnings) then it will be taxable.

Best advice already offered, talk to a good local accountant, they will make sure you structure everything properly from the get go.

heretolearn_2

Also I'm a bit confused about the status of this second business

I'm considering taking on a second job as a software developer / consultant which I intend to treat as a second employment..

If someone else is employing you, then it isn't your business. You can't take your salary and invest it in a different business that belongs to you (buy to let) without paying tax on salary as usual.

If you meant that the software developer/consultancy is a self employed role/will be done through a Ltd company, well, finances can sort of be connected through different elements of a business but you need proper professional advice on making this work without it being plain tax evasion. Generally speaking people don't get to buy a house out of their pre-tax business profits, no.

techdojo

Thanks for the all advice,
@Mistral001 - I wasn't trying to "evade" anything (hence the quip about it being legal), obviously like most people I would like to pay as little tax as possible (however if you know of any safe's that need blowing in these tough economic times then feel free to PM me ).

@fguk - Thanks for clearing that up, so basically as I understand it if I opt to treat the work as a self employed person, then basically all income (less allowable deductions) is taxable (and for me that will be at %40 + NIC), if on the other hand I set up a Ltd company and perform all work through that then the company can sit on the cash in it's bank account (less any money owed in corporation tax) and I (as a director of the company) can use the money to invest in property (or whatever) however if I ever take any money "out" of the company then obviously it's liable for taxation.

@heretolearn - sorry if I didn't explain it properly, what I meant was I am currently employed full time by a third party, however what I intend to do is do "extra" work for myself under my own name for which I would consider myself self employed (or potentially for my own Ltd company)

Next stop - the accountants 8-)

Thanks again for all the help.

InsideInsurance

techdojo wrote: »

I (as a director of the company) can use the money to invest in property (or whatever) however if I ever take any money "out" of the company then obviously it's liable for taxation.

To be pedantic, no, you as the director can decide that the company will use its money to invest in property but then the company owns that property and any income it generates.

techdojo

Sorry that was what I meant - that the company would own all the assets etc.

By "taking money out" I meant if I ever pay myself an income or dividend from the companies profits.

Savvy_Sue

One serious word of warning: it's not YOUR decision whether or not you're self employed, regardless of whether it's your second job or not. See the HMRC Employment Status Indicator.