Bringing net income to below 100k

[Deleted User]

Grumpy_chap said:

I don't understand the comment "saved enough for a deposit" with respect to becoming a Ltd Co.  The costs of setting up a Ltd Co. are minimal.  There are pros- and cons- of both sole-trader and Ltd Co. operation.  It really is worth discussing with an Accountant.

What type of trade do you work in that you have sole-trader income in the order of £150k yet only £2k allowable expenses?  Even if you are in a "desk job" professional services, I'd expect there to be further allowable expenses to consider.  Again, discussing with an Accountant will give you guidance on what is appropriate.

You mentioned that your gross income this year has been much higher than previous years.
This year around £150k gross sole-trader income (assuming the interest is a smaller fraction of the total).
What was your turn-over type level in previous years?
When did you register for VAT?
To clarify, the £150k sole-trader income is total excluding VAT, or total including VAT?

I was assuming that the profit is £150k - but you could well be correct. 

Grumpy_chap

[Deleted User] said:

Grumpy_chap said:

I don't understand the comment "saved enough for a deposit" with respect to becoming a Ltd Co.  The costs of setting up a Ltd Co. are minimal.  There are pros- and cons- of both sole-trader and Ltd Co. operation.  It really is worth discussing with an Accountant.

What type of trade do you work in that you have sole-trader income in the order of £150k yet only £2k allowable expenses?  Even if you are in a "desk job" professional services, I'd expect there to be further allowable expenses to consider.  Again, discussing with an Accountant will give you guidance on what is appropriate.

You mentioned that your gross income this year has been much higher than previous years.
This year around £150k gross sole-trader income (assuming the interest is a smaller fraction of the total).
What was your turn-over type level in previous years?
When did you register for VAT?
To clarify, the £150k sole-trader income is total excluding VAT, or total including VAT?

I was assuming that the profit is £150k - but you could well be correct. 

The OP clarified a couple of posts upthread:

justpassingthrough24 said:

Yep, I'm self-employed as a sole trader. By gross income I mean the gross earnings from self-employed trade and bank interest. I don't get any income elsewhere. I'm also not factoring in business expenses, but this only gives me around £1000-2000 tax relief.

The split between sole trader earnings and interest income has not been advised in the thread so far as I can tell.
I assume the majority of the £150k is sole-trader earnings.

InMyDreams

justpassingthrough24 said:

Going forward I'm considering becoming a limited company within the next couple of months now that I've saved enough for a deposit, but I know I'd need to sit down with an accountant to figure out if this is worth it.

The tax is just killing me.

I assume you mean deposit for a house?

My worry is that you will have a nasty surprise when you file your 23/24 return (meaning you will have to dig very deep into your saved deposit) because it sounds like come January 2025 your payments on account won’t be close to covering this year’s liability and you’ll also have to pay another 50% on top to cover the first half of 24/25 (which will assume equivalent income again). How much of your income are you putting aside as you go to cover the tax?

Your comment about tax killing you suggests it would really be worth spending some of your £150k on an accountant asap who can go through this with you because you are running out of time in this tax year.

They will know what questions to ask you, and you will be able to give them far better information than you can to a forum of strangers. The end of this tax year is fast approaching so don’t sit on this.

Grumpy_chap

InMyDreams said:

My worry is that you will have a nasty surprise when you file your 23/24 return

It will be an even nastier surprise if the OP has not registered for VAT.
The OP seems reluctant to indicate how much of the £150k is savings interest and how much is from sole-trader earning, or whether the £150k (or whatever sole-trader proportion) is inclusive or exclusive of VAT.

It worries me that the OP has got to this level of earnings yet been reluctant to pay an Accountant to advise them.  The fees charged by an Accountant would likely be recovered through savings in taxation liability.

justpassingthrough24

Thank you everyone for the helpful replies. I've just been able to come back onto the forum and seen the most recent replies, hence not been able to update or answer any questions rather than it being due to my reluctance.

My earnings from interest are about 5k - this is purely from savings over the years and due to the excellent interest rates. I opened an ISA last week and am aware I probably should've opened one earlier.
The rest of my income is purely from sole trader earnings.

FYI I do have an accountant. He isn't the most responsive and I am currently shopping around for a new one, which was why I came to this forum for advice. I wanted to understand this for myself as I found the information online quite overwhelming, as someone who is new to self assessment, tax, and being self employed. I guess I'll think twice about posting on here asking for advice in future as I should have enough for a decent accountant..

Once again, thank you everyone for the helpful advice. It has helped me understand how this works and I'd feel comfortable making my own decisions re my SIPP while getting a new accountant in place.

Grumpy_chap

Thanks for updating OP.
So, £150k total income, of which £5k is interest leaving £145k as sole-trader earnings. 
Limited (£2k) expenses attributable to the trading activity.
Is the £145k inclusive of VAT or exclusive of VAT?
When did you first start working on sole-trader?

The most tax-efficient thing to do is put £50k gross into pension.  That has to be weighed against the short-term life goal of buying a house.  Do not let the tax-tail wag the dog.
If you put £30k into the pension, that leaves your ANI just towards the higher end of the personal allowance taper, which could be the worst of all worlds.  A route might be to suffer tax this year and sacrifice all the personal allowance, but then make larger pension contributions next year to ensure that all the personal allowance is retained.
You have not mentioned it, so I assume that tax-free child care is not a consideration.  If it were, this would make a big difference to the value of bringing ANI below £100k