Exisiting PAYE and setting up new business

alsuk

Hey

Hope you are all well

I am currently employed on a PAYE basis (40% tax), and I am training to offer coaching on the side. Can anyone offer any advice for paying myself from my side business? Basically, I am trying to work out whether it is better to invoice through the business I currently work for on a consultancy basis, or whether I am better of setting it up as separate entity (sole trader or Ltd)

Thank you! 

Jeremy535897

If your employer can invoice for your time, why are you able to do it separately if you wish? Isn't it covered by your contract of employment?

alsuk

Hey Jeremy, thanks for the comment. This is more about that I would like to do some outside of my working hours (I am a senior manager within the organisation so I know this won't be a problem), I just need to work out how to make it work best financially

Jeremy535897

I think that if your employer were to invoice your time, and pay you a consultancy fee, that would inevitably be treated as part of your pay for PAYE purposes. If you want to set up an independent business, you will need to become a self employed trader, or form your own limited company and become a director of that.

alsuk

Yep, they are both valid ways, thanks. I guess what I was looking for really, sorry if I wasn't clear, it perhaps what is likely to be be the most tax efficient way to do it

Jeremy535897

It's difficult to offer further suggestions in the absence of data. The choice between sole trader and limited company is complex, with thought required about the benefits of limited liability, diversity of share ownership, corporation tax v income tax and NIC, and many other issues. Fundamentally though, unless there is likely to be a significant amount of income from it, limited companies tend to cost more than they save.

KingOfSnake

The most tax efficient way is not necessarily the easiest. It all depends on your anticipated level of turnover, profit, income extraction and long term aims. Assuming you want to make some significant profits, the best thing to do is search for a local expert on the Institute of Taxation's website e.g. it may transpire that you don't need to extract income in the short term, and rolling it up for a capital distribution (with CGT exemptions, entrepeneur relief etc) is the most tax efficient. It also depends on your other circumstances e.g. you mention you are a senior manager at the moment, so that income needs to be taken into consideration as well as any family circumstances e.g. claiming of child benefit, loss of personal allowance >£100K, restriction of pension tax relief etc.
For a REALLY REALLY basic guide, less than £20-30K profit I would go for sole-trader as this is simple and you can do three line accounts via self-assessment, anything above that look at the benefits of incorporation (dividend, capital gain on wind-up, some more tax free expenses that can be paid). 
NB! Keep an eye on "IR35" - your potential clients may be caught and be risk adverse and so only want to take you on via an agency or umbrella (and be careful of umbrellas offering deals that are too good to be true).
In summary, there is no right-or-wrong answer, it all depends on your current circumstances and future intentions. If you are serious about making the move invest a little cash in speaking to someone who can look at the bigger picture, rather than the short term gains.

DoctorStrange

It sounds as though your current employer will be involved in your side business (sourcing clients perhaps?). If that's true, you'd need to read up on the off-payroll rules as you can wind up in a mess...

You cannot have your current employer invoice on your behalf then pass those monies to you B2B.

I'd say you need specialist advice and not just from an accountant but ac tax specialist such as QDOS or IR35 Shield

alsuk

Thanks all - very helpful and food for thought. I will set up some time to discuss options with an accountant and go from there!