Considering consulting - tax questions about first assignment

Bobby_Applejuice

Not sure if this is in the right section as it's related to tax, self employment and freelance/consultancy. 

I currently have a full time job but i am dripping my toe in the world of consultancy to see if it's something i can do full time and leave my current job.

I currently earn 50k so in the 40% bracket. I have a small consulting job that is helping me understand if it's what i want - working weekends and evenings to do it. They are paying 5k for this work. How does this work for me from a tax point of view? As it's a sideline for now is there any way of avoiding the full 40% for now? If i leave my job and start consulting are there any tax breaks for doing that?

Thanks

Dazed_and_C0nfused

Any profit will be taxable at your marginal rate.

Your business expenses (or trading allowance if low expenses and you qualify for it) might mean your taxable profit is say £4k.

If your taxable PAYE income is £50k you will be taxed a little at 20% and mostly 40% on your business profits 

But you can extend your basic rate band by making relief at source pension contributions to a personal pension or SIPP.  Meaning less income is taxed at 40%.

For example say you contribute £4k gross, your basic rate increases from £37,700 to £41,700.  That £4k involves you paying £3,200 with the pension company adding £800 in basic rate tax relief.

You also then could save a few hundred pounds in personal income tax as you will be paying 20% tax on your profits not 40%.

So overall the real cost of a £4k pension fund might be c£2.5k.  Even less if HICBC is a factor.

Jeremy535897

If there is any equipment that you need to do your consultancy self employment, the cost can be deducted from any profit.

martindow

I know it's not the question you asked, but is your full time employer happy with your consulting work?  Employment contracts sometimes require you to let them know or seek their permission.  And obviously there are potential issues if the consultancy has arisen from existing clients of your employer or contacts you have gained from your job.

Apologies if this is already cleared with your employer, but you don't want to jeopardise your salaried work even if you are contemplating leaving.