Extra Income - Self assessment or create a LTD?
JayN
Forumite 10 Posts
Hi,
I am starting to think about how I need to declare and pay my taxes for extra income I have received. I would really appreciate if someone could point me in the right direction as I am not sure if my working out is correct.
I earn over £70k+ per year as a PAYE and I have started making and selling a homemade face coverings as a side business on Etsy which is doing well at the moment. I suspect this will be a short lived stint. I have earned more than £1000 trading allowance - so I will be declaring this income - but in which what way? I have no other income and do not complete a self assessment. I cannot see the pro and cons for either.
At present - I have made £2000 (profit after expenses) in the last month - I think this business will go til the end of the year or around Oct time. Going forward, I think the demand will decrease and I will make on average around £1000 (after expenses) per month.
If I declare this on my self assessment - I will have to pay 40% tax on the extra income generated from Etsy (let's say £5000 after expenses) in April 2021 - which is £2000.
If I create a LTD, I will pay 20% corporation tax (£1000) in April 2021, and if I draw the profits of £5000 at the end (I don't know when this is when I close the business or at the end of the tax year), I will only pay 20% on £3000 which is around £975. So in total tax is £1975, as opposed to £2000 for self assessment.
I don't know if this is a correct workings out method - but I don't know at what point I should create an LTD (if any). The issue of creating, setting etc up an LTD is fine if it is worth it.
Many thanks!
I am starting to think about how I need to declare and pay my taxes for extra income I have received. I would really appreciate if someone could point me in the right direction as I am not sure if my working out is correct.
I earn over £70k+ per year as a PAYE and I have started making and selling a homemade face coverings as a side business on Etsy which is doing well at the moment. I suspect this will be a short lived stint. I have earned more than £1000 trading allowance - so I will be declaring this income - but in which what way? I have no other income and do not complete a self assessment. I cannot see the pro and cons for either.
At present - I have made £2000 (profit after expenses) in the last month - I think this business will go til the end of the year or around Oct time. Going forward, I think the demand will decrease and I will make on average around £1000 (after expenses) per month.
If I declare this on my self assessment - I will have to pay 40% tax on the extra income generated from Etsy (let's say £5000 after expenses) in April 2021 - which is £2000.
If I create a LTD, I will pay 20% corporation tax (£1000) in April 2021, and if I draw the profits of £5000 at the end (I don't know when this is when I close the business or at the end of the tax year), I will only pay 20% on £3000 which is around £975. So in total tax is £1975, as opposed to £2000 for self assessment.
I don't know if this is a correct workings out method - but I don't know at what point I should create an LTD (if any). The issue of creating, setting etc up an LTD is fine if it is worth it.
Many thanks!
0
Latest MSE News and Guides
Replies
At your PAYE level, don't you need to self-assess anyway? For example if you had savings, until a few years ago you'd have been providing information on interested earned in case there was more tax to pay above that which was automatically removed by the bank.
droopsnoot said: The PAYE level is new to me and have only been earning this amount for the last 7 months - previously I was on a lot lower.
I will look into the savings point in case I should be completing a SA.