Tax on Freelance Work & Setting up a LTD Company?

quarry_men

Hi there..

I work in a creative industry for a high profile company, moonlighting or extra freelance work in this industry is frowned upon so its best to keep it quiet!

If one was to partake in any freelance work or (moonlight), wouldn't that persons tax code change due to the extra income they would be getting and making that persons employer aware that he/she was earning extra elsewhere?

Now in order to get round this am I correct in thinking that if that person was to set up a LTD company in order to receive payment for the freelance work, the tax code of the person wouldn't change as a result as its the company that is receiving the extra income and not the individual..? And am i also correct in thinking that the company would have its own tax free allowance of £4,000?

I really would like to clarify this as I am really unsure what the best solution would be..

Many Thanks

fengirl_2

Your tax code at your job would not be affected by any self employed earnings and HMRC would not tell your main employer anything about your personal circumstances. You would pay the tax on the freelance earnings direct to HMRC twice a year.
I don't see the point in having a limited company - its just another layer of beaurocracy which is not needed.

quarry_men

fengirl, thank you for your reply, that has cleared a few things up.

Do I need to inform HMRC that I will be partly self employed before I start the work? or do I just get on with it, do the work, earn the money and then as long as I declare it when needed all is ok?

Also, once HMRC work out how much tax i owe for the self employed earnings, do they take it directly or send me a bill?

Many Thanks

Treading_Water

Hi QM

Several points to consider here.

Are you not putting your main job at risk by moonlighting? Is there a clause in your emplyment contract against it? You will often find that there may be a clause that requires you to get their permition before taking out any other related work!

You will need to inform HMRC within 3 months of taking up self employment and will then be sent a self assessment form to declare all annual earnings. This will not affect your tax code in your main job as long as you tick the box that states you do not want any tax owing taken through your tax code.
You may be liable to pay class 2 & 4 NI contributions (but depending on income could qualify for small earnings exemption).

A few years ago there was a tax benefit in having a Ltd company - but this has now been removed in the main. As long as this remains a small secondary job the costs (i.e. setup, accountant, formal paperwork) tend to outway the benefits.
Should you be in the position where the secondary business involves an element of personal financial risk it could be well worth the beaurocracy of setting up a Ltd company as this can protect your non business possessions in the event of any problems. I.e (Limited Liability Company.)

Debt_Free_Chick

quarry_men wrote: »

Now in order to get round this am I correct in thinking that if that person was to set up a LTD company in order to receive payment for the freelance work, the tax code of the person wouldn't change as a result as its the company that is receiving the extra income and not the individual..?

Nope

And am i also correct in thinking that the company would have its own tax free allowance of £4,000?

Definitely "nope". The person only gets one tax free allowance irrespective of how many jobs they have.

A change of tax code can occur for any number of reasons. The code is simply applied by payroll and they won't give it a second thought. They certainly won't be reporting it to your manager or HR as there's "nothing to report".

What's more worrying is that "this person" is intending to wilfully deceive their employer and they should expect no leniency at all if they're caught out. Particularly if they use company equipment (e.g. laptop at home), company information or company time to "moonlight".

quarry_men

thank you for the info..

i wouldnt worry about it too much, it only gets ugly if an employees freelance work has a direct effect on the company for which they work, i.e. working for the same clients..

your right in saying that using company equipment and time is worrying, and anyone would be stupid to even consider doing freelance work inside their main jobs hours.