Side hustle and limiting 40% tax

shark_DB

I'm currently employed and just into the 40% tax bracket, even after paying extra pension contributions which means I'm also in the bracket for paying back our some child benefit. I've now got the opportunity to do some additional work on my days off but I'm not sure it's worth it after deductions. It's been suggested to me that I could form a company and work as a contractor instead of as an employee, then get paid in dividends. Does anyone have experience of this and is it worth the hassle?

eskbanker

Dividends still form part of your adjusted net income for child benefit assessment purposes, so wouldn't help on that front, but the limited company model can be tax-efficient when compared with others.

Grumpy_chap

If the OP does this additional work on a Ltd Co. basis and does not need to draw the money earned now, as either salary or dividend, the OP has the potential to make all of the additional income as employer pension contributions (subject to applicable limits) or to retain the funds in the Ltd Co. as retained profits (which will be subject to corporation tax) and then chose to draw the funds at a future point when the OP's taxation may be lower in any case.

Isthisforreal99

If you are 'just into the 40% tax bracket' currently then you should not be paying any child benefit back unless your adjusted net income is over £60k - which, to me, is not just into the 40% tax bracket that kicks in at £50,271.

monkey-fingers

Isthisforreal99 said:

If you are 'just into the 40% tax bracket' currently then you should not be paying any child benefit back unless your adjusted net income is over £60k - which, to me, is not just into the 40% tax bracket that kicks in at £50,271.

I was thinking this - I thought perhaps something had changed.

MyRealNameToo

shark_DB said:

I'm currently employed and just into the 40% tax bracket, even after paying extra pension contributions which means I'm also in the bracket for paying back our some child benefit. I've now got the opportunity to do some additional work on my days off but I'm not sure it's worth it after deductions. It's been suggested to me that I could form a company and work as a contractor instead of as an employee, then get paid in dividends. Does anyone have experience of this and is it worth the hassle?

It gives you options like taking no pay or dividends and just leaving the money there paying a one off 19%-25% corporation tax (depending on how much revenue you generate - I say revenue as your costs are likely to be minimal)

It can be worthwhile, depends on your wider strategies and aims. Cases where earning more not actually paying you more is very rare/odd cases but for some the net income isnt worth the effort but thats a different matter to it not paying. 

A friend does some token freelance work alongside a perm job, his company gives them an electric company car which he couldn't get from his Perm job and a few other tax deductible benefits.