Contracting as a second income

tails009

Hi there.

I’m looking at doing some consultancy work for a local university on top of my full time job and I’m wondering what’s the most tax efficient way to deal with the income?

To give a bit of background, my full time job is a staff position and the university are offering to pay an hourly rate for 1 – 2 hours per week (increasing to maybe 5 – 6 hours as time goes on) for a maximum of 3 months, working online.

I will set up a Ltd company for the university to pay into and I’m quite happy not to draw any salary at all but I guess at some point I’ll need to take money out. Am I best just to draw out a dividend each year? I’m not sure whether I’d fall within IR35 or not, anything I seem to find on it seems open to interpretation?

As a side note, I owe a sum of money to a family member who loaned me money a few years ago, would it be possible to pay them directly from my limited company? Since they are retired and their pension is the only form of income, they wouldn’t have to pay tax on what I gave them (assuming it was within the personal allowance)? Is this correct?

Thanks for any advice.

tyllwyd

If it is just for three months and no longer, I would have thought setting up a limited company is overkill, and might end up quite an expensive way of doing things. If you are already working for the university as PAYE, would it not be easier for them just to pay it as overtime or extra hours worked?

tails009

Thanks for the response It would be for 3 months but every year. i.e. Jan - Apr.

I have probably worded my initial post wrong. My full time job is working for a different company, however, a few years ago I did the university course and they have contacted me to see if i would be interested in helping out on one module within that course. Since it's a part time course, the module will last for 3 months and then come around again the following year.

nomunnofun

tyllwyd wrote: »

If it is just for three months and no longer, I would have thought setting up a limited company is overkill, and might end up quite an expensive way of doing things. If you are already working for the university as PAYE, would it not be easier for them just to pay it as overtime or extra hours worked?

Absolutely - the expense does not justify the tax saving, if any.

With regard to the loan, this is just an incorrect way to treat this. Why would the family member have to pay tax, or regard as taxable income below the personal allowance, on money owed to him or her. Unless, of course they are to go on the payroll on this short-lived limited company which adds further to the complications?

tails009

Thanks, that's a good point about the loan, I'm not sure how the whole tax thing works to be honest. I would have thought if I was to draw money out of said company, I get taxed, then I use the remainder to repay the loan. If the company pays directly then no tax is paid at all?

Pennywise

tails009 wrote: »

Hi there.

I will set up a Ltd company for the university to pay into

Why? Limited companies are cheap to buy, but need a lot of care and attention to comply with accounts preparation, tax registrations and filings, Co House returns, etc. Fines and penalties for getting things wrong can mount up very quickly, and you'd probably need an accountant to deal with the filings if you've no experience/knowledge in that field to manage it yourself. For such relatively small amounts of income, you'd almost certainly be better just going on their payroll.

CLAPTON

your relative pays no tax when you repay the loan or indeed pays no tax if you make a gift of the money


however, there is no legal way of paying him from your company and treating it as an company expense (as it clearly isn't).

tails009

Thanks,

Very good point - I hadn't really thought of that. I had heard of people of having relatives as directors etc and paying a dividend and I guess I'm getting ahead of myself. However, as has been said, it is maybe overkill to set up a company for such small sums of money. My only concern is if I get offered another module (a big IF) next year and then I am doing say 4 hours a week for 6 months - the money starts to add up.

Pennywise, I don't believe my employer would be too keen on me going on another companies payroll, however, they have agreed that they are OK with me consulting on a contratcing basis.

grey_gym_sock

a third option, apart from using a limited company or going on the payroll, is to be self-employed. it's less admin than a company - more realistic to do it without an accountant. also generally less tax saving than a company. but more admin and more tax saving than going on the payroll.

tails009

Thanks, I hadn't really considered that - I figured if you were self employde you were completely self employed. I didn't realise you could be employed full time but at the same time be self employed part time. This sounds like a plan! Thanks.

Savvy_Sue

Actually I'm really surprised that the Uni aren't wanting to put you on the payroll, and I'm not sure that this can be treated as self-employment. Remember, it's not your decision, nor the University's, and if you're contracted by the University to deliver a module then I'd have thought they were employing you.

Take a look at the HMRC page for working out if you're employed or self-employed.