Extra Income - Self assessment or create a LTD?

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!

Comments

  • droopsnoot
    droopsnoot Posts: 1,750 Forumite
    Name Dropper First Anniversary First Post
    JayN said:
    So in total tax is £1975, as opposed to £2000 for self assessment. 
    I haven't checked your workings-out, but that doesn't seem to be worth the hassle of setting up the company, to me. Does that number include the cost of creating the limited company, and if not, won't that wipe out your £25 saving? Of course, it's not just about the cost.

    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.
  • JayN
    JayN Posts: 10 Forumite
    First Anniversary First Post Combo Breaker
    Thanks Droopsnoot. 
    droopsnoot said:
    JayN said:
    So in total tax is £1975, as opposed to £2000 for self assessment. 
    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.
    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. 
Meet your Ambassadors

Categories

  • All Categories
  • 342.9K Banking & Borrowing
  • 250K Reduce Debt & Boost Income
  • 449.6K Spending & Discounts
  • 235K Work, Benefits & Business
  • 607.7K Mortgages, Homes & Bills
  • 172.9K Life & Family
  • 247.7K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards