Please can someone advise me on second income

MazzyB

Hi,

I currently earn £65k p/a and I have the option to do a small amount of freelance work which may bring in an additional £5k per year. My salary is already enough to support my family so I am wondering if there is an efficient way I can just save this additional income from freelance work.

I have been considering setting up a ltd company and paying myself no salary but I believe this may now have some legal problems. I was hoping I could set this up and pay myself a small tax free dividend each year and also make my wife a partner and pay her the same tax free dividend and we could then put this into a savings account for the future. The figure I've seen on line is about £2000 per year each.

I just want to work out if taking on the extra freelance work is going to cause me major headaches or put me in some kind of awkward legal situation.

I'm a complete novice at this and only know what I've read (and taken as true) from forums such as this.

Any help would be great!

Thanks

Pennywise

As long as it's a "business" rather than a job, as a sole trader, you're first £1,000 isn't taxable (or you can deduct actual expenses if higher), so that leaves £4,000 at 40% tax is £1,600, so you get to keep £3,400 of your £5,000.

With a limited company, you'd be paying £500-£1000 to an accountant (unless you know how to do company accounts in Companies Act format and corporation tax retursn etc), so your "profit" will be, say, £4,250, less corporation tax at 19% gives £3,442.50 - only slightly more, so is it worth the bother?

Either way, you could put the £5,000 straight into a personal pension and pay no tax which is probably wiser if you don't need the money.

MazzyB

Wow that's really so helpful - the calculations and everything

I had not even considered the pension idea either!

Thank you so much for helping me out