Employed and self employed

Vickyxgp · 19 May 2019 at 11:36PM

Hi all,

I'm hoping someone can shed some light or experience of my current situation.

I am employed full time taking £22k per year. I am about to register a Ltd company, so will also be self employed.

When I do my self assessment at the end of the tax year I will obviously document my 'job's' income and then the dividend amount I'm taking, will that then calculate the amount of tax I then need to pay?

Will my tax then be affected for the following year for my employment?

I dont want to take a decent sized dividend if my employed tax is going to off set it and leave me down each month.

Thanks

Aquamania · 20 May 2019 at 8:35AM

Vickyxgp wrote: »

Hi all,

I'm hoping someone can shed some light or experience of my current situation.

I am employed full time taking £22k per year. I am about to register a Ltd company, so will also be self employed.

When I do my self assessment at the end of the tax year I will obviously document my 'job's' income and then the dividend amount I'm taking, will that then calculate the amount of tax I then need to pay?

Will my tax then be affected for the following year for my employment?

I dont want to take a decent sized dividend if my employed tax is going to off set it and leave me down each month.

Thanks

I don't follow exactly why you are setting up a ltd company when you are full time employed.

However, that may be academic. If you set up a limited company and are a director, you will usually be considered an employee of that limited company.

Whilst that may not always be the case, it doesn't make you self employed.

Assuming you are employed by the ltd company and are paid a salary, then when you come to complete your annual tax return (which you will have to do as a director of a company) then you simply complete 2 sets of employment pages.

If you plan to take dividends from your ltd company, then tax due on this (if any) will be calculated and become payable.
Dividends do not usually affect your tax coding at HMRC

This page gives more information on how dividends are taxed
https://www.gov.uk/tax-on-dividends

I have assumed any earnings you make the ltd company do not fall under IR35, as that would complicate matters further.

Vickyxgp · 20 May 2019 at 10:59AM

Thank you for your reply.

I wouldn't be an employee of the company, more of a shareholder. Does this make a difference?

Pennywise · 20 May 2019 at 11:21AM

Vickyxgp wrote: »

Thank you for your reply.

I wouldn't be an employee of the company, more of a shareholder. Does this make a difference?

You are effectively both as you're also the director, a position which is taxed under employment/payroll rules. Most people with their own limited company take a mixture of payroll and dividends.

Vickyxgp · 20 May 2019 at 1:38PM

Thank you Pennywise.

I do not plan to take a salary. I will only take dividends. Does this make a difference?

Rappa · 20 May 2019 at 2:19PM

Vickyxgp wrote: »

Thank you Pennywise.

I do not plan to take a salary. I will only take dividends. Does this make a difference?

If your dividends are less than £10k per year, you can ask HMRC to adjust your tax code if that is what you want them to do.

Or you can just leave it until your self assessment, which you will be asked to do anyway as you will be a director of the limited company,

It's explained in the link given above by Aquamania

00ec25 · 20 May 2019 at 7:55PM

Vickyxgp wrote: »

Thank you Pennywise.

I do not plan to take a salary. I will only take dividends. Does this make a difference?

given your circumstances that is the best plan since your existing job will use up your personal allowance in full so there is no point at all taking a salary from your company

please please never ever think you are self employed. You are NOT. You are an officer of your company, in simple terms that makes you an employee of your company, whether you draw a salary or not.

for your tax return you will pay tax on your total income. You have 2 sources of taxable income:
- the 22k job which is taxed under PAYE @ 20% income tax and uses up all your personal allowance (also subject to NI of course).
- dividends from your company, where the first 2k is taxed at 0% and you then pay tax at the (applicable) dividend rate 7.5% and/or 32.5% on the rest depending on which tax band your total income puts you in. You will not be subject to NI on dividend income.

"total income" = 22k - PA + dividends
you can google the tax band thresholds yourself and then read up on how they work as you need to educate yourself on how tax works

Vickyxgp · 21 May 2019 at 9:15AM

Thank you.

That makes a lot of sense. I'm weighing up the options currently and what to establish how much it will 'cost' me as such in tax during the short time that I will remain employed.

Pennywise · 21 May 2019 at 10:43AM

If, say, the company makes a £5,000 profit, there's £950 corporation tax, leaving £4,150 to pay out as dividend, which is taxed personally on you, first £2,000 tax free, next £2,150 at 7.5%, so £161.25. So total taxes are £1111.25.

However, if you pay the whole £5,000 as wages, there'd be no corporation tax, and you'd pay basic rate tax on the wages of 20% so just £1,000.

So it would save you £111.25 to pay it out as wages instead of dividend. Yes, you'd have to set up a PAYE scheme and make payroll submissions, but you wouldn't have to do a personal self assessment return.

Vickyxgp · 21 May 2019 at 1:01PM

That's interesting Pennywise, thank you.

Would I need to then be paid monthly? Or could I submit 'timesheets' for a period of time to that amount?

Would taking a salary less than monthly be seen as strange?

00ec25 · 21 May 2019 at 5:49PM

Vickyxgp wrote: »

That's interesting Pennywise, thank you.

Would I need to then be paid monthly? Or could I submit 'timesheets' for a period of time to that amount?

Would taking a salary less than monthly be seen as strange?

technically a director is an officer of a company and unless specifically written down, the norm is they have a "contract for services", not a "contract of employment" so they are not paid on the basis of hours worked per timesheets. Their pay is because they do what is needed to run the company, that is never expressed as a rate per hour.

you could take the whole lot in one go as a single lump sum

the director's exception extends to NI in that unlike for a "normal" employee who is subject to NI being calculated/deducted each time the employee is physically paid, for a director their NI is treated as an annual cumulative figure, so they only pay NI if their pay exceeds the annual NI threshold.

Employed and self employed

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