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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have recently been dismissed from work and intend to

Customer Question

Hi,
I have recently been dismissed from work and intend to open a new small business. If I register self employed will my tax code change? Currently I pay 40% tax but haven't earned anything since the 24th March 2016. I wanted to know because I have a private pension and want to take the money out to fund the new business will I still have to pay 40% tax or will that change if I alter my status to self employed please.
Many thanks,
Mandy Phelps
Submitted: 7 months ago.
Category: Tax
Expert:  TonyTax replied 7 months ago.

Hi.

If you register as self-employed, you won't have a tax code as tax codes are not operated against income form self-employment.

If you take all the cash out of your pension, you should get 25% as a tax free sum but the balance will be taxed. The pension payer may ask you what tax rate you pay. Given that you haven't earned anything in the current tax year, you can tell them that and they should tax some of the payment at least at 20% depending on the size of the taxable payment itself. At the end of the 2016/17 tax year, you will be issued with a tax return in which you should dislcose your business income and expenses and your pension receipt. You will either owe sonme tax or be overpaid depending on the level of your business profit and the tax deducted from the pension payment.

I hope this helps but let me know if you have any further questions.

Customer: replied 7 months ago.
Thanks Tony, I drew money out of the pension last year and received 25% tax free but paid tax on the other amounts I drew, however, at that time I was working PAYE. If I were to register as self employed now and draw the money out shortly thereafter is the tax on that (£11,000) charged immediately or do I declare this at the end of year accounts please ?
Mandy.
Expert:  TonyTax replied 7 months ago.

The tax will be deducted by the pension company and you will receive the net amount.

Customer: replied 7 months ago.
no matter that I register as self employed I would still be taxed at 40%? Is that correct ? I am just trying to find a way of not paying tax immediately because I need the money to set up a new business.
Expert:  TonyTax replied 7 months ago.

They won't necessarily deduct 40%. As I said earlier, they may ask you what rate of tax you pay. If they do, you might say 20% because you don't know how much you will earn in your new business in the first year.

You should check with the pension company as they all appear to do it different ways. If you take it before you start the business you might have much less tax deducted.

Expert:  TonyTax replied 6 months ago.

Hi.

I'm just following up to find out if my answer helped or if you have any further questions.

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