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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Hi, Im looking for some information regarding my current

Customer Question

Hi,

I'm looking for some information regarding my current working situation.

I have been registered as self employed since July 2013, and work as a freelancer web designer & developer. I've decided to set up a side line business which I hope will one day overtake my freelance work and provide me with a full time wage.

I've done some reading regarding tax etc but am still very confused by it all. I've set the new business up (as a limited company with me as the director) and also a business bank account. The business hasn't started to trade just yet, but will do hopefully within the next couple of months.

My main questions are:

1, Do I remain 'self employed'? I am the director of the new company, but will not be taking a wage for the foreseeable future. I will be putting every penny earned straight back into the company.

2, I've yet to do a self assessment for my freelance work, will HMRC inform me when it's time to do this?

3, In your professional opinion, am I doing the right thing? i.e. setting up a limited company? The reason I did this was because I wanted the company to be as official as possible.

Any help is greatly appreciated.

Many thanks,

AW
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello AW, I'm Keith and happy to help you with your question.

As far as the company is concerned a director is, by definition, an employee and the company must operate PAYE, deducting tax and NI from his emoluments. This only applies to any payments made by the company for services rendered. You can remain self employed for any other business activities.

HMRC may not inform you of the necessity to make a self assessment tax return, they usually do so by sending you a form to complete. You cannot hide behind HMRC failure to send out a form, if you need to self assess and have not received the forms you must ask your tax office for the appropriate documents. You would have to self assess for example for the tax year 13/14 for earnings received between 6 April 2013 and 5 April 2014.

It is my personal view that it is safer to operate through a limited company as this places a buffer between you and your customer in the event of a gross error on your part. However, the converse is that you will have to operate your salary under PAYE conditions (see above).

I do hope I have helped you with your problem.
Customer: replied 2 years ago.

Thank you for your reply.


 


As I won't be paying myself a wage initally, will I have to set up a PAYE scheme as I will be the only employee?

Expert:  bigduckontax replied 2 years ago.
Yes you will, but you don't need to do this until the possibility of wages approaches; saves a lot of interim hassle with zero returns.
Customer: replied 2 years ago.

At the moment I act as a freelancer designing websites, I will be submitting a self assessment tax return for my income. Now I have a limited company set up am I best to carry on submitting a self assessment for any additional income I make from my websites or is it possible to set up a subsidiary company and declare the income via the limited business? Which way would be financially benefical or at all possible?

Expert:  bigduckontax replied 2 years ago.
Whilst you are receiving fees directly from customers that is self employment. When your fees are paid to your limited company then those fees become part of the profits of the company. These profits are reduced by any income you pay yourself from the company. Such payments must be made under PAYE. Any surplus after this (ie fees received less fees paid out to you)) will be taxed on the company under the Corporation Tax regime.

Which method is more beneficial to you depends upon the costs. Self employment attracts NI contributions as does PAYE, but when the company pays you it has to pay the employer's element of NI also so you have to assess which is the better option.

Even after switching to PAYE HMRC may still want you to self assess. For example my income is entirely pension based, yet I still have to self assess annually.



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