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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hi I am employed by the family heating business which is

Resolved Question:

Hi

I am employed by the family heating business which is sole trader in my fathers name and i earn £42k per year the business is VAT registered, we have a new stream of servicing work coming through which we are unsure how to maximise its profits tax wise.
Would it be better to put this work through our existing business and pay VAT and tax and add it to my earnings that way as an "overtime" or start a new LTD company myself as an additional job with me being self employed on that business and still employed on the other but not being VAT registered, expected income would be £20k for that business??

many thanks
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

I am a trifle confused as to your wording 'pay VAT.' The new stream of income will be billed plus VAT and unless there is some problem with your customer the only VAT you would pay would be that already collected through the settling by your customer of invoices. Perhaps you could throw some light on this area.

I accept that as your income under PAYE rises so do the deductions, but you would soon be over the maximum for NI for example. It is clear, however, that you would be in the 40% tax bracket. Were you self employed then the deductions which would be available, as you probably know extremely limited under PAYE, might be greater than if you were paid under PAYE, but without details of what these might be my answer is a trifle constrained.

The biggest money spinner for the individual is contributions to a private pension scheme. The company, either of them could contribute also. Individual contributions can be 100% of salary/earned income but are limited to 50K this tax year, 40K next tax year. There is no limit to the amount a company could pay in on your behalf and such payments would be allowable against any Corporation Tax assessed. Of course the same is true of wages and employer's NI contributions.
Customer: replied 3 years ago.

Not interested in pension etc, i am interested in maximising my income and paying the minimum amount of tax possible,

Expert:  bigduckontax replied 3 years ago.
What you propose is certainly feasible, but the maximisation of your effective take home pay is constrained by the level of deductions you could make under self employment. I have told you of the main one, but you have indicated that this is outside the box as far as you are concerned. If you self employ you will also have to make all your own contributions for NI and as I told you if you roll all your income under PAYE in your father's employment you might be slightly better off as you would be over the NI contribution limit. Under the scheme you are suggesting you could find your NI overpaid which, incidentally, cannot be recovered at all. Your father's business would invoice the new company for your services, but would, of course, have to charge VAT which the company could not recover save as an expense allowable against corporation tax.

One important point; do not become a director of the new company. Directors of companies are employees per se and cannot be remunerated other than through PAYE.
Customer: replied 3 years ago.

Hi thanks for your time, just to be clear the new company would deal with these customers and take payment completely independent of the existing company, so no invoicing between the two businesses thats what i mean when i say no VAT with the new business

Expert:  bigduckontax replied 3 years ago.
Right, got it. Pleased to have been of assistance.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3360
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 3 years ago.
Thank you for your support.
Expert:  Sam replied 3 years ago.
I am afraid my colleague has steered you in the wrong direction - you I can see were asking about creating a new business - so that the new work did not suffer VAT as one way of saving money - however HMRC would treat these as connected businesses for VAT purposes. See link here http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm#7 and scroll down to"Do not avoid registering for VAT by artificially separating business activities" and this could end up a very costly mistake abd you end up losing far more, than the tax savings you hope to make.Do feel free to ask any follow up questionsThanksSam
Expert:  bigduckontax replied 3 years ago.
A misleading over post; it is possible that HMRC might direct that the new company put its invoices through the existing organisation for VAT purposes only. I am aware of a situation involving two companies where this has happened, but as the second company only makes zero rated supplies the net result was a substantial reduction in the revenue take.
Expert:  Sam replied 3 years ago.
Hi

I do apologise, but we want to make sure that there are no hidden surprises by this proposed venture, which I am sure my colleague agrees, hence my intervention, and as he appears to agree somewhat with the issue I have raised, I am glad I was able to bring this to your attention.

Regards - and please do feel free to ask me any follow up questions

Thanks

Sam
Expert:  bigduckontax replied 3 years ago.
My necessary over post also made it clear that actually it was an irrelevance.

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