TAXing question!

[c4l]

Ok guys - decided to put a few of my 'scatter-brain' ideas behind me now - no more cones or driveways - well not for this month anyway!!

Going to leave the cars and air freshners to run themselves as they seem to do ok this way with my minor input.

Anyway, decided to put my brain to the best use i can and look at doing something that I've got a degree in - quantity surveying. Currently also do this as my day job.

Can earn £28 an hour freelancing at the moment and have been doing a little bit of work for a man that i know at weekends. Basically, he's told me that he has enough work for me to keep me busy for a good few days a week and i was just thinking that if i pick up another contract doing this freelance work, i'd be laughing!

Anyway. have a bit of a tax question.

Ok, i've based my projections on working 47 weeks a year, 37.50 hours per week = @ £28 hour = £44,062.50. Now this would be my first 'proper' business - i.e. the first one that's made me give up my day job. Its good as it's very low capital - have all the stuff i need give or take £1k's worth of software and books but thats not a major issue.

Question is - if i was earning £44k a year, i'd surely be in the 40% tax bracket. Right? Ok, if i were to set up as a limited company, could i make the £44k for the company, pay myself the maximum within the 22% bracket (the range i'm currently in) and leave the rest of the funds in the ltd company's account, or use this to buy 'essential business purchases' such as nice new cars etc!?!! Reason for asking is that if i go from my current salary in the 22% bracket to the proposed in the 40%, the difference is only going to be minor considering such a major change to my way of working.

Maybe this is a simple business question that everyone bar me knows the answer to, maybe it sounds like a tax dodge - i could just do with an answer please guys!!

[bwglaw]

...i've based my projections on working 47 weeks a year, 37.50 hours per week = @ £28 hour = £44,062.50.

Why 47 weeks. Should make it 52 weeks if you want holiday pay.

Question is - if i was earning £44k a year, i'd surely be in the 40% tax bracket. Right?

Not quite, because it is not 40% on 44k, it is broken down i.e. no tax up to personal allowance, 10% up to £10k, 22% up to ?. I am not an Accountant so hopefully someone can explain this better.

...if i were to set up as a limited company, could i make the £44k for the company, pay myself the maximum within the 22% bracket (the range i'm currently in) and leave the rest of the funds in the ltd company's account, or use this to buy 'essential business purchases' such as nice new cars etc!?!!

Except for the cars, yes it appears so. The car may be subject to Company Car Tax.

The Accountants i.e. Alpha, Joyous etc will be able to tender a better answer than me

[c4l]

I just meant that i would be earning for the business for 47 weeks rather than 52. Obviously that 47 weeks worth of work has to feed me and the wife for 52 weeks!

My Dad's an accountant so i will speak to him eventually about all this.

Just seem to ask him so many businessy questions of recent, i think he's put me in his contacts list under clients rather than family!!

Cheers for that anyway Handsongroup.

[sjbeale]

It would be best if you talk to an accountant about setting up as a ltd company and paying yourself. With a ltd company the usual advice to keep the tax bill down is to pay yourself the NMW then you take out the profits through dividends.

If you give up your permanent job don't forget there is no guarantee of income and relying on one source of income and even just two is dangerous. You should build up a good client base through networking/referrals. It takes a couple of years to gain a good income but worth it in the end.