Exploring Self Employment & Tax queries

Bear777

Hi everyone. I am exploring the possibility of leaving my job where I am PAYE as a standard employee.

I am on a reasonably good salary (£68k) with 10% company pension contributions, a company car worth about £400 a month, contributory healthcare, a mobile & laptop.

I contribute about 20% of my gross salary as personal pension payments which grosses up to about 24% and have built up a good base to date that with standard compound growth would arguably be big enough in the next 10/12 years to very comfortably retire on without a single additional payment. 

I am seeking a bit of advice on the following:

I. In order to maintain my current lifestyle what should I be charging for my time per hour if I am self-employed. What I do is irrelevant I am just trying to get an idea on what it should be approximately. I am not necessarily seeking to make more money than I am currently and in fact I would accept less to be my own boss and to benefit from the change this would offer. But assuming I am looking to maintain my current lifestyle as a basis to work from then what should I am to achieve?

2. Given I have no personal vehicle currently, what’s the best route to go down from a tax perspective in terms of purchase and running costs for a vehicle to minimise the cost to me.

3. I will use space in my house as a personal office. Currently there is no mortgage on the house but I am of the understanding that there are items I can claim back against it’s use for that purpose. 

Only starting really on this journey of exploration so please be nice on here. I am just seeking some initial advice and having been an employee for over 25 years I have never previously had to or needed to consider this. 

[Deleted User]

Bear777 said:

Hi everyone. I am exploring the possibility of leaving my job where I am PAYE as a standard employee.

I am on a reasonably good salary (£68k) with 10% company pension contributions, a company car worth about £400 a month, contributory healthcare, a mobile & laptop.

I contribute about 20% of my gross salary as personal pension payments which grosses up to about 24% and have built up a good base to date that with standard compound growth would arguably be big enough in the next 10/12 years to very comfortably retire on without a single additional payment. 

I am seeking a bit of advice on the following:

I. In order to maintain my current lifestyle what should I be charging for my time per hour if I am self-employed. What I do is irrelevant I am just trying to get an idea on what it should be approximately. I am not necessarily seeking to make more money than I am currently and in fact I would accept less to be my own boss and to benefit from the change this would offer. But assuming I am looking to maintain my current lifestyle as a basis to work from then what should I am to achieve?

2. Given I have no personal vehicle currently, what’s the best route to go down from a tax perspective in terms of purchase and running costs for a vehicle to minimise the cost to me.

3. I will use space in my house as a personal office. Currently there is no mortgage on the house but I am of the understanding that there are items I can claim back against it’s use for that purpose. 

Only starting really on this journey of exploration so please be nice on here. I am just seeking some initial advice and having been an employee for over 25 years I have never previously had to or needed to consider this. 

Best advice - make an appointment with an accountant. Many offer a free initial consultation. 

SensibleSarah

Only you can really decide what your hourly/daily rate would need to be to maintain a like-for-like income to what you have now. You'll have to factor in your salarly, company car, compensating for no paid time off and sick pay, plus make sure you take into account that future pension cotributions from you would have no employer contributions to top them up. Then factor in whether there are likely to be times between contracts where you won't earn anything - this can depend somewhat on the industry and whether there is seasonality to take into account for demand for what you do. But also the strength of your own network and how you'll source new work/contracts.

Presumably you've done some research already about what contractors/freelancers etc get in terms of day rate for the specific services you'll be offering? So you have an idea of what the going rate is. If that's in the right ballpark with your estimations for what you need to charge then it could be a go-er. 

Speaking to an accountant early doors is a good idea to make sure you've included everything you need to into your calculations. 

I can't really advise on the car as I don't use one for my business, just a personal car. And as for allowable expenses when working from home, I'd say that's definitely something you should be asking an accountant and will vary, depending on which accounting method you choose for tax reporting and whether you're a sole trader or ltd company etc. 

Grumpy_chap

Bear777 said:

Hi everyone. I am exploring the possibility of leaving my job where I am PAYE as a standard employee.

I am on a reasonably good salary (£68k) with 10% company pension contributions, a company car worth about £400 a month, contributory healthcare, a mobile & laptop.

I contribute about 20% of my gross salary as personal pension payments which grosses up to about 24% and have built up a good base to date that with standard compound growth would arguably be big enough in the next 10/12 years to very comfortably retire on without a single additional payment. 

I am seeking a bit of advice on the following:

I. In order to maintain my current lifestyle what should I be charging for my time per hour if I am self-employed. What I do is irrelevant I am just trying to get an idea on what it should be approximately. I am not necessarily seeking to make more money than I am currently and in fact I would accept less to be my own boss and to benefit from the change this would offer. But assuming I am looking to maintain my current lifestyle as a basis to work from then what should I am to achieve?

2. Given I have no personal vehicle currently, what’s the best route to go down from a tax perspective in terms of purchase and running costs for a vehicle to minimise the cost to me.

3. I will use space in my house as a personal office. Currently there is no mortgage on the house but I am of the understanding that there are items I can claim back against it’s use for that purpose. 

Only starting really on this journey of exploration so please be nice on here. I am just seeking some initial advice and having been an employee for over 25 years I have never previously had to or needed to consider this. 

You need to decide between Ltd Co and sole-trader business, or whether your work will be via Umbrella Company (inside-IR35).  

The hourly rate will be set by the market to some extent, but the way I would go about assessing this is to work out the total cost to an employer of your current employment:

• £68k
• Employer NI, about 13% on that £68k, so £9k
• Pension contributions £7k
• Car £5k
• Healthcare, mobile, other incidental benefits, say £5k.
• That is a total cost to employ £94k or thereabouts.

Then work out how many hours / days you will work in the year:

• 52 weeks per year
• 2 weeks not working, Bank Holidays plus a couple of sick days.
• 5 weeks not working, annual leave
• 45 weeks working per year
• 5 days per week
• 40 hours per week

Then it is simple division:

• £94k, 45 weeks = £2.1k per week
• £420 per day
• £52.50 per hour

After that process, you are taking a bit of a judgement as to how many of the 45 weeks you will be gainfully employed or not earning revenue.  You will need time for accounts.  You will need time for sales and marketing.  You will simply have some days with no fee earning work available.  
Assume that you work on the basis of 15% of available time as non-fee earning.  That's 85% fee earning
that means the £420 per day needs to be £495 per day to make the same annual figure (£420 / 0.85).

Then you take a judgement as to what the market will bear for your type of work.
You might think £495 is a good number (just below the psychological £500) or you might think it too low or too high, so adjust accordingly.

Then you need to think about how customers will negotiate. 
If you ask for £495, will they accept that, or try to negotiate £450? 
Do you need to pitch at £550 to get £500ish? 
Will customers simply walk away if you pitch at £550?
Will you be quoting work on day-rate, where the £495 (or whichever) figure is clearly visible, or will you be selling for providing a fixed service / outcome where the day-rate is obscured but you might have to pick up the time of tasks just taking longer than expected?


For a vehicle, if you go Ltd Co and can afford to buy a brand new EV, that is the most tax efficient route based on current taxation rules.  Taxation rules can change at any time.


For the household use, the simplest is to pay yourself the WfH allowance.  Other approaches need to be justified and can risk part of the house being considered commercial for Council Tax and CGT purposes.


Have you engaged the services of an Accountant?