Earning secondary income

Georgeseba

Hi - I am employed and have recently been given the chance to earn extra cash by providing freelance services to a third party outside of my employment. I am trying to figure out the best way to maximise my income - it will work out at around £5,000 per annum I suspect.

My wife is currently unemployed and I wondered if I should set up a company with her as sole shareholder and us both (or just me) as director. I carry out the work at no cost and the fees go to our company - no real expenses I can justify so the whole amount would be retained profit. If I don't draw a salary, presumably she can just take any retained profit out as a dividend on an annual basis and not pay any tax on it as it will fall well below releva

zygurat789

Why bother with all the expense and hassle of an Ltd?
You and your wife could form a partnership, you may split profits as you see fit and there is no need for dividends.
It does however mean three tax returns

SeniorSam

Presumably you have checked your contract of employment regarding such work? Many companies do not allow their employees to 'sideline', as this may affect the business or put strain on the employee who can then not perform duties sufficiently. If you have not checked with your employers, I suggest that you do.

Sam

carolnolan121

Share with me some tips...goo.gl/cER7vO

Georgeseba

Yep - no probs on the legal front re secondary income in my case.

Georgeseba

zygurat789 wrote: »

Why bother with all the expense and hassle of an Ltd?
You and your wife could form a partnership, you may split profits as you see fit and there is no need for dividends.
It does however mean three tax returns

Sounds like the way forward. Do you know if there is a good article on line about how to go about this, notifying HMRC and dealing with VAT etc?

martinsurrey

Georgeseba wrote: »

Sounds like the way forward. Do you know if there is a good article on line about how to go about this, notifying HMRC and dealing with VAT etc?

This is exactly the type of scheme HMRC can challenge using the General anti abuse rule.

"The GAAR applies to ’tax arrangements’ which are ’abusive’. In broad terms a tax arrangement is any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes. ’Tax advantage’ in this context is also broadly defined. "

As the only reason for your wife to be involved is to obtain a tax advantage you could be caught out.

Deciding to set up as a company or as a sole trader would be fine. However funnelling all of the profit through your wife who has zero input into the business could be seen as abusive.

Not a clear cut case, but be careful on how aggressive you become.

zygurat789

martinsurrey wrote: »

This is exactly the type of scheme HMRC can challenge using the General anti abuse rule.

"The GAAR applies to ’tax arrangements’ which are ’abusive’. In broad terms a tax arrangement is any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes. ’Tax advantage’ in this context is also broadly defined. "

As the only reason for your wife to be involved is to obtain a tax advantage you could be caught out.

Deciding to set up as a company or as a sole trader would be fine. However funnelling all of the profit through your wife who has zero input into the business could be seen as abusive.

Not a clear cut case, but be careful on how aggressive you become.

But
BIM72055 - Partnerships: General notes: Sharing Profits / Losses

Profits, losses or other income may be shared as the partners may mutually agree from time to time (Sections 19 and 24 Partnership Act 1890). The sharing ratio need not be in proportion to contributions of effort or capital. It is not necessary for the partners to share profits and losses in the same proportions, nor income from other sources in the same proportions as trading or professional income. A partner's share of the income on which they are assessable is computed according to their entitlement in the partnership’s accounting period.

What an inspector can do is governed by law, apparently this has not been challenged.

zygurat789

martinsurrey wrote: »

This is exactly the type of scheme HMRC can challenge using the General anti abuse rule.

"The GAAR applies to ’tax arrangements’ which are ’abusive’. In broad terms a tax arrangement is any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes. ’Tax advantage’ in this context is also broadly defined. "

As the only reason for your wife to be involved is to obtain a tax advantage you could be caught out.

Deciding to set up as a company or as a sole trader would be fine. However funnelling all of the profit through your wife who has zero input into the business could be seen as abusive.

Not a clear cut case, but be careful on how aggressive you become.

In fact if you read the GAAR document you will see that it does not include people who are complying with the law of the land and is targeted at "abuse". How can complying with the law be an abuse of it?