Additional consulting income - what's the right approach?

Lomcevak

Hi all. Mrs. L earns just under £50k at present in her full-time role, and has been offered an additional external consulting role that's likely to be worth around £5k - £15k per year over the next three years. Typically she'd consult for (and be paid by) three or four additional organizations per year, earning about £500 - £5k from each one. This would all be completely separate from the 'day job' but is in the full knowledge of her employer, and is both permitted by her contract of employment and encouraged by the employer, so no issues there.

She will incur around £1k in direct expenses (mostly travel and accommodation) that will be deducted from these earnings.

We don't need the cash in the short term and are keen to use it in a tax-efficient way (we have three children, so taking it as income and going above £50k would incur a very high marginal tax rate due to child benefit clawback), so it's likely to be used for pension AVCs unless there are any other options.

However, we're struggling to figure out how to deal with and declare the additional income. A couple of her colleagues have set themselves up as either a Ltd Company or a LLP for this kind of work, is this necessary for something like this? Seems a bit over the top, but this is the area I'm struggling to understand and she's required to hold professional indemnity insurance so maybe there's some sense in going Ltd/LLP? If a company isn't required, is it then as simple as just declaring it as self-employed income on her tax return and declaring the corresponding pension contributions and expense deductions?

Thanks for any thoughts, I have no experience in this kind of thing and want to make sure we get it set up right from the start so there are no 'surprises' later on.

agrinnall

Sounds to me like the sort of situation where spending a few quid up front on a good accountant's advice could save you a lot more over the years.

chrismac1

This looks like a no-brainer for a limited company setup on the face of your post. The key point to bear in mind is that her personal tax position can be totally unaffected by the profits in the company so long as she draws neither salary nor dividends.

This strategy is useful where you can afford and wish to keep self-assessment income low for a few years before then bumping up dividends. So for:

1. Keeping under the child benefit hit levels - personal pensions also useful for this.

2. Where you have a child at college and going through the Student Low system.

3. Nearing retirement where you expect to comfortably be in a lower tax bracket when you reduce your working hours.

SeniorSam

If not a Limited Liability Company, then as self employed, she could claim for her home office and other expenses. Paying additional pension contributions would also reduce her income tax position. Professional advice may be called for, but as she will no doubt need an accountancy service, she could ask them for guidance.

Sam

HappyMJ

I vote for the limited company option too. It limits the liability in the event of a claim to whatever the company has in assets which would be nothing. If you were a sole trader then you could lose the house if a client were to sue her for advice which has cost them tens of thousands of pounds. They can sue the Ltd. company but you can declare that insolvent and start another one.

Lomcevak

Thank you everybody, sounds like a limited company is the right way to go but talking to an accountant hadn't crossed my mind - given my lack of understanding of the details that's probably a very sensible thing to do, so will add that to the list for Monday.

zygurat789

Lomcevak wrote: »

Thank you everybody, sounds like a limited company is the right way to go but talking to an accountant hadn't crossed my mind - given my lack of understanding of the details that's probably a very sensible thing to do, so will add that to the list for Monday.

Ltds have to produce annual accounts for filing at Companies House within deadlines and, as they are a separate legal entity, they have to file their own annual Corporation Tax return.
These are some of the things your accountant will do for you as well as organising your income to produce the lowest tax beneficial liability.