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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I retired last christmas and took by pension (29k a year).

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I retired last christmas and took by pension (29k a year). I then started a part-time job (22K a year). I then created my on consultancy and was given work which over this tax year will come to about £51K although I've had to travel 200miles a day (seriously) so believe I can claim 45p/mile back reducing the £51K to about £44K. Total income £101K with £7K of tax free travel(?). Overall a fair bit more than I was expecting to earn. Is there any way of avoiding 40% tax on the consultancy work


The cost of travel to and from a fixed place of work is not tax deductible I'm afraid as it is treated as private travel. If your consultancy work takes you to different places then that will make a difference. As you say yourself there is a risk that HMRC may say that you are an employee. The school has taken you on on a self-employed basis because it wants to avoid having to pay employer's national insurance contributions. Working for one client isn't the only criteria which determines employed or self-employed status. HMRC might look at how much control you have over how you work as opposed to being told what to do and whether you can send a substitute to do the work if you are ill, for example. A genuinely self-employed individual isn't told how to do their job by the customer or client.

As far as avoiding tax at 40% is concerned, there really isn't much you can do other than to pension some of the earnings, though given the size of your pension, you may be very close to your lifetime allowance of pension savings. I'd recommend you consult an independent financial adviser to discuss pension possibilities if that is of interest.

You might consider setting up a limited company to do the consultancy work through, though there could be IR35 implications if you do. Working through a limited company means that you as the director/employee only pays tax on what they draw out of the company in the form of salary and dividends so it is possible to roll up income in the company to take at a future date when you may be fully retired.

You will find information on employed/self-employed status and IR35 here.

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

Customer: replied 3 years ago.

Thanks for this... as I don't need the savings made this year until I fully retire it would seem sensible to set up a limited company, lead the money there for a later date when I only have my pension as income. The question is, 'Can I create the Company now and put the earnings from April to December 2014 in it - and still avoid paying 40% tax on it'?

I'm afraid that you cannot treat income earned before the company existed as income of that company. If you do decide to set up a company, you should make sure that the contract it has with the school is IR35 compliant. One of the benefits of a company contracting with a client is that so long as the contract is no longer than 24 months in length, you can claim tax relief for travel costs as the place of work will be treated as a temporary workplace.

Take a look here for information on the 24 month rule and and here for information on IR35 compliant contracts.
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