Reducing Tax on second income: Limited company

billygunn111

Hi folks

I have a job which pays £42000 which is a design consulancy for a big organisation and I also have a side web business that makes around £35-40k a year.

I treated that as a part time sole trader business income until recently, but just changed to a Ltd Company (Sept 17) as I started dealing with bigger companies and I needed to be seen as more than just a sole trader and appear bigger.

My main job is based at home and it takes up a little of my time, so as you can understand its very hard to give up my main job. I do plan on leaving soon though once I grow my side business a bit more.

Is it more beneficial being a ltd company than it is sole trader? obviously I am hitting 40% for all my second income, So I really want to know where I can save or what advice anyone has for me.

I am in between accountants at the moment as my old accountant is almost retired and a bit old school, so I am in talks with a few more modern, digital based accountant to streamline things and I am being told mixed things. So I am looking for some advice

I am new to the Ltd way of doing things and sole trader was easier, but I felt very expensive as a second income. Still trying to get my head around dividends and corporate tax etc

Where can I save myself here to lower my tax?

• Is all my secondary income 40% or can I do something smart here with dividends/salary to reduce?
• What salary/dividends can I take out the business to maximise profits?
• I work at home, can I save money here as Office space/% mortgage to reduce my tax?
• My step daughter (16) is a great help to me with some marketing stuff / Can I pay her a salary to reduce?
• Can I put my car payments through the business as I visit clients all time?

My side business is growing each year and ultimately that is my goal to do that full time soon, but the combined next year would probably bring me to over 90k+ a year. Does that mean I now need to be VAT registered even though half is a salary and half is a business?

Sorry for all the questions Any advice on my situation would be much appreciated.

Thanks so much in advance for your help

kidmugsy

Get yourself an accountant versed in these things: there are lots I'm sure.

To avoid 40% tax on your second income just don't take the income - or rather take enough as dividends to reach the higher rate threshold but no more.

What about the spare company income? if you hope to expand the company you might be best just to accumulate the capital for some time in case the company needs it. If you think it's unlikely to need it you can get the company to bung some into a pension for you. That counts as an expense and so reduces profits and therefore reduces Corporation Tax.

00ec25

higher rate tax band for 17/18 starts at 45k

you already have a PAYE job bringing in 42k so you have only 3k left at the basic rate tax band

there is little point you taking that 3k as salary from the company as it would be taxed at 20% for your and would not reduce the company corporation tax profits by enough to justify the extra tax you personally would pay as opposed to simply taking the 3k as dividends taxed at 7.5%

the simplest answer is take everything as a dividend.
Of course you may have investments which already pay dividends so you may not have all of the 5k 0% dividend allowance still available, but even so, if you take all of the profit out of the company as a dividend you'd pay dividend tax of 7.5% up to the basic rate band and 32.5% on the rest at the higher rate band. Better then paying 40% income tax if taken as salary