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Sam, Accountant
Category: Tax
Satisfied Customers: 14197
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I currently earn £65,000 p/a from an employer and pay tax through

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I currently earn £65,000 p/a from an employer and pay tax through PAYE.
I have done some work on the side, and am due to receive £20,000 as additional income. I am registered for self-assessment.
My question is, is the amount of tax I owe worked out on my total income? Regardless of where it comes from?
ie. could i setup a private company and invoice the £20k through this and pay myself in dividends to reduce my tax burden?
Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.
Yes your tax bill is worked out on total income of which the self employment also can have relevant business expenses deducted from thre gross amount earned (and then there will be self employed National Insurance on this £20,000 - with the first £8060 National Insurance free)
If you set up a company then all net income is subject to Corporation tax which is 20% and then taxed as income if you draw as salary (there are savings to be made drawing some as a dividend but the costs for accountancy and deadlines and running payroll will far outweigh any potential tax savings)
And the dividends can only be paid out after Corporation tax is suffered - so of the £20,000 £4000 will be lost in corporation tax which leaves £16,000 and then you can only have the net dividend (as the tax suffered remains in the company) so you walk way with £14400 which then will be subject toa a further 22.5% due to your higher rate tax position so suffer £3240 (so Corporation tax plus dividend tax totals from £20,000 you walking away with just over £12000 and if you added the full £20,000 to your pay and suffered 40% tax = £8000 you then walk away with £12000 and no additional accountancy bills !!
PLus HMRC will insist that some of the income is drawn as salary anyway.
At this stage I would suggest you remain as a sole trader with this additional work
Do let me know if I can be of any further assistance
Customer: replied 2 years ago.
Thanks Sam - makes total sense really.Appreciate the quick response.
You are very welcome
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