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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15709
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi I'll try to be as succinct as possible with my query. I

Customer Question

Hi
I'll try to be as succinct as possible with my query.
I have a standard salaried position with a major employer, earning around 35k for a four-day week.
I have also started doing some freelance work as of June 2014, typically earning £700 - £1,200 per month (and the trend is upwards).
This is done for a separate company who pay the money into my account. To make it slightly more complex, I then send some of this to third parties, ie I might be paid £1,000 to write 30 articles, however I am free to outsource some of these so might pay someone £300 to write 10 of them. So I have earned £700 from this, though £1,000 has come into my personal account.
Over time - hopefully in 2015, I would like this freelance work to expand to the point I can leave the full time job.
What I need advise on is firstly dealing with the 2014 tax - as the freelance work has been since June 2014 do I just need to do a self assessment in April
Also, I want to set up as a Limited Company. So for a while I would have the staff position, plus a separate Ltd company into which I get paid for the freelance work, and out of which go the payments to third parties. And this ltd company would then expand over time - my freelance work is related to search engine optimisation, so the Ltd company would take on its own clients for SEO and general web marketing.
I would appreciate some help both on the 2014 tax position and also setting up the Ltd co and the tax implications thereof. Does it sound the best option?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

I'll take a look at this and post an answer in a short while.
Customer: replied 1 year ago.

Hi - thanks. The note on email said you need some extra info, of course I can provide this, what is it you need to know?

Cheers

Jon

Expert:  TonyTax replied 1 year ago.
Hi again.

My last post was posted as an "info request" but no info was needed over and above what you had already tole me.

As you started the freelance work in June 2014, your first tax return will be for the year ended 5 April 2015. I suggest you run your accounts to 5 April 2015 to keep things simple and avoid the double taxing of some of your first years's profit twice. Clearly, the Sub-contract fees will be a deductible expense. You can register as self-employed here. Any tax and national insurance contributions for 2014/15 will be payable to HMRc on 31 January 2016. You may also have to pay instalments on account of the following tax year's liability but that will depend on the level of your earnings from your regular job.

As a self-employed individual, you will pay tax at 20%/40%/45% and Class 4 NIC at 9% (over a certain profit level) on your profit as you make it. If you set up a company, then you will only pay personal tax when you draw income out of the company in the form of salary and/or dividends. Dividends are an efficient way to take income from a company as they are not subject to NIC whereas salary above a certain level is. The company will pay corporation tax at 20% on its profits. Dividends are a not a deductible expense for a company whereas salary is.

Most people who work for themselves start out as self-employed to keep costs down and to see it things work out. Running a company comes with more onerous responsibilities and complicance costs so you may prefer to wait until you are generating a more signicant income before you start up a company but it is entirely up to you. Whilst you are employed elsewhere, you would not need to draw income from company funds thereby keeping your personla tax liabilities down which you won't be able to do if you are self-employed and still working as an employee elsewhere.

You can set up a company online yourself or use an accountant or company formation service to do it for you. Search on "company formation" for more information.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Thanks for the help - I'll try to keep follow-ups to a minimum.

Just so I'm clear though - I think I will go with Ltd company rather than self employed (partly because I think the status might make it easier to get clients).

That being so, assuming I set up the company in the next month, is process still same, ie as I've been doing freelance work register as self-employed to take care of the tax burden for 2014?

Or better to wait to set up company until 5 April this year, so that only exists for the 2015 tax year onwards? That way would I take care of 2014 purely via the registering as self-employed link, then from April 2015 have the salaried position + Ltd co?

Thanks

Jon

Expert:  TonyTax replied 1 year ago.
You could set up a company now and leave it dormant until the start of the new tax year or 1 April 2015.

If I were you I'd set up the company in, say March 2015. That way, you can run your first accounts from say, 15 March 2015 to 31 March 2016 and complete corporation tax returns for the period from the day of incorporation 15 March 2015 to 14 March 2016 and from 15 March 2016 to 31 March 2016. After that, you will receive a corporation tax return for the period 1 April 2016 to 31 March 2017 and so on.

It would be even easier if you set up the company on 1 April 2015. You would then receive just one corporation tax return for the period 1 April 2015 to 31 March 2016. Take a look under the heading "Your limited company's first accounts and Company Tax Return here for information on corporation tax dates.

You will still need to disclose the self-employed income and register as such as you cannot backdate the start date for a limited company.
Customer: replied 1 year ago.

thanks the extra response - I'll hit the link to make sure payment goes through. Just v quickly - for the self assessment for 2014 what's the timescale, do I just need to register pre April and then get my accounts in shortly afterwards?

Expert:  TonyTax replied 1 year ago.
I'd register the company with HMRC as soon as you have the company set up. I'd also do the accounts as soon as possible.

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