How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask TonyTax Your Own Question
TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
13905389
Type Your Tax Question Here...
TonyTax is online now

I am 60 years old and have 25 out of 37 years of Church of

Resolved Question:

I am 60 years old and have 25 out of 37 years of Church of England pension. I am about to start up a consultancy business. Am I best being self-employed, employed or setting up a Ltd Company and being a Director? What are the tax and NI implications of each?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

Can you tell me what the nature of your business will be please. What level of pre-expense income or turnover do you envisage the business will produce? When will your Church of England pension commence? How much will that be before tax annually?

Customer: replied 3 years ago.

I will be a clergy consultant working with groups of clergy and 1-1. This is a start-up venture and the income stream will take some time to get up to speed. I am aiming for an income of £30K by the end of next tax year.


 


My CofE pension can start any time from 65 and at current rates would be £9712 pa

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I draft my answer. There is a fair amount to get through so please bear with me.
Expert:  TonyTax replied 3 years ago.
Hi again.

Most people who start a new business do so on a sole trader basis to find out if they can make a success of it before committing to the time and financial costs involved in the associated compliance burdens of a limited company. At higher profit levels, the tax and national insurance savings to be had by using a company can be significant and there is more flexibility on how much tax you pay personally through the efficient planning of salary and dividend drawings.

If you make a trading loss as a sole trader, in the early years it can be relieved against income from earlier years as you will see here. Company losses can be carried back against previous profits of that business or carried forward to be offset against future profits only.

As a sole trader, if you made a profit of £30,000 and assuming you had no other income, you would pay income tax in 2014/15 of £4,000 and class 4 national insurance contributions of £1,984. You would also pay class 2 national insurance contributions of £2.75 per week.

A company would pay corporation tax at 20% on profits of £30,000 (£6,000 tax). However, if you paid yourself a salary of around £7,500, you would avoid personal tax, employee and employer national insurance contributions on the £7,500 and save £1,500 in corporation tax. You could draw the balance of the post tax profit in dividend form and pay no further tax. Read about dividends and tax here.

Clearly, as profits rise, the tax and NIC savings increase as with careful planning, the director/shareholder may avoid paying higher rate personal tax. If you use an accountant, however the fees may be higher for a company than for a sole trader.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 3 years ago.
I have to go out for a while but will be back a little later to answer any follow up questions you my have.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

I thought I'd asked a follow-up question but it doesn't seem to have registered. If a Ltd Co pays me £7500 + dividends, can it also pay into a pension fund and, if so, how much for a 60 year old like me?

Expert:  TonyTax replied 3 years ago.
The most that can be paid into a personal pension plan owned by the director/employee (you) by the company and/or the director/employee is 100% of the annual earnings, £7,500 in this case. It would be better for the company to pay the contribution so as to avoid you wasting all your personal tax allowance. Take a look here for information on pension contributions.

You have to be careful that you do not exceed your lifetime pension allowance as this will take account of your Church pension. Take a look here for more information on this. You would be well advised to consult a pension adviser before you commit toa new scheme.