Unsure of how to proceed with additional earnings

Xeorix

Earlier this year, I started dabbling with Amazon to earn a bit of extra money alongside my day job. At first, it started out as the odd £40 a month or so which wasn't anything crazy and would be banked and taxed personally. I was expecting that my additional earnings would still keep me out of the 40% tax bracket.

Last month, the earnings exploded and if I banked them now, it'd push me well into the 40% bracket - I'd probably lose about £8k in tax.

As it stands, this isn't sustainable due to the nature of what I'm doing and the figures will die down. I'm not even sure if I can carry on with what I'm doing exactly, and I do not know how I will reinvest the money at the moment.

I've been advised that I should setup an Ltd company and pay my 20% corp tax and then just take out dividends on the money I need personally. Even if I cashed out 50% in dividends, I'd end up paying 20% corp tax and then another 40% tax on my dividends so may very well be worse off.

Right now, I'm unsure of what to do that will be the best outcome in all situations.
Any advice would be appreciated.

CLAPTON

Xeorix wrote: »

Earlier this year, I started dabbling with Amazon to earn a bit of extra money alongside my day job. At first, it started out as the odd £40 a month or so which wasn't anything crazy and would be banked and taxed personally. I was expecting that my additional earnings would still keep me out of the 40% tax bracket.

Last month, the earnings exploded and if I banked them now, it'd push me well into the 40% bracket - I'd probably lose about £8k in tax.

As it stands, this isn't sustainable due to the nature of what I'm doing and the figures will die down. I'm not even sure if I can carry on with what I'm doing exactly, and I do not know how I will reinvest the money at the moment.

I've been advised that I should setup an Ltd company and pay my 20% corp tax and then just take out dividends on the money I need personally. Even if I cashed out 50% in dividends, I'd end up paying 20% corp tax and then another 40% tax on my dividends so may very well be worse off.

Right now, I'm unsure of what to do that will be the best outcome in all situations.
Any advice would be appreciated.

how much are you expecting to make this tax year? (april 2015 to april 2016)
how much is your PAYE


dividends aren't taxed at 40% and the system is changing in 2016-17

Xeorix

Overall, if I took my salary plus additional earnings, I'd be looking at around the £50k mark. Without my additional earnings, I'd be just under the 40% personal tax bracket.

Savvy_Sue

Other questions I think it's worth asking: do you have children for whom Child Benefit is payable? Do you have a pension plan you could use to reduce your salary?

[Deleted User]

Last month, the earnings exploded and if I banked them now, it'd push me well into the 40% bracket - I'd probably lose about £8k in tax.

You have already earned them - when you actually bank them is not the vital component here!

Xeorix

Savvy_Sue wrote: »

Other questions I think it's worth asking: do you have children for whom Child Benefit is payable? Do you have a pension plan you could use to reduce your salary?

No children, but I have a pension plan through my daily job with Aegon

[Deleted User] wrote:

Last month, the earnings exploded and if I banked them now, it'd push me well into the 40% bracket - I'd probably lose about £8k in tax.

You have already earned them - when you actually bank them is not the vital component here!

Well, I've had my first cheque which still keeps me under the 40% bracket. I won't receive my next cheque or earnings until January now. Besides, I believe if you register a company, the earnings can be backdated for X months