Freelancing, self employed & in a partnership, how to pay myself tax efficiently

[Stephanie Harris]

Hi

I would really appreciate some advice on what my best plan of action is.

I decided to start up a marketing partnership with a friend, I have left my job and am working for a company that uses a company called main pay to pay me, technically I think they say I am employed through Main Pay however I get the idea that I am self employed and that they just account for me and charge an administration fee. This is just something to pay the bills so that I know I am covered while I start the business.

So I have set up a business bank account and registered both partners as self employed aswell as registering the business.

The part that gets complicated is that my old company want me to freelance 5x days per month on a day rate of £250 which I assumed I would get paid through the business and then draw as a salary. My partner is happy for me to financially organising everything so doesnt mind how i do things.

Then we have a few clients, so with these payments I assumed my partner and i would draw a 50/50 split on profits and leave some in the business.

What i dont know what to do is to structure all of this in the best tax efficient way.

Eventually once the business can support both of us we will leave our jobs and do this full time.

I have a few questions

Can I pay myself a wage from the business, the full £1250 that i earn freelancing then keep 30% back for self employed taxes in a savings account in the business for tax?

Can i take a wage from the business as the partnership is 50/50 but not on the freelancing money i earn?

I dont really know where to start?

I think once i get my head round it i will be competent enough not to need an accountant because we will not be making that much to begin with, however due to the complexity of me basically having three self employed jobs do i need to pay an accountant?

Thank you inadvance

 

[john1989]

Can I pay myself a wage from the business, the full £1250 that i earn freelancing then keep 30% back for self employed taxes in a savings account in the business for tax?
You can't pay yourself a wage. You can withdraw money from the business - this is known as drawings. Tax will be based on the apportionment of profits between the partners, which is 50/50.

Can i take a wage from the business as the partnership is 50/50 but not on the freelancing money i earn?
No.

I dont really know where to start?
This is why you need professional help. Registering the partnership is the easy bit.

 

[Stephanie Harris]

After lots of reading I assumed this was the case, I best book an appointment with an accountant then, thank you

 

[paulears]

If you are self-employed you will have a UTR number. If you ARE self-employed then why on earth would you pay an agency to pay you - when self-employment means you do your accounts and pay your tax and NI based on your profit, so totally different from a kind of PAYE. You don;t get wages, you take drawings from the business. Again, nothing much to do with tax because in self-employment YOU are the business, and if you are in a partnership, you are both self-employed and again, your tax liability is based on profit after allowable expenses. You do not have 3 self-employed jobs, you have one and three clients! It sounds like a consultation with an accountant is vital. You may also find they will guarantee to save you more than they cost you.

Freelancing is not a proper HMRC term, you will be either an employer or a self-employed person. Self-employed people do have to be in a role that HMRC are happy with. For instance, it's not an option to really be an employee, but 'pretending' to be self-employed to avoid the employer collecting PAYE, employers NI and you paying NI. There is actually a useful little online test on the HMRC site which will make a decent guess as to your proper status.

If you are really an employee, and doing some self-employed work at the same time, this is fine - HMRC are happy with dual status. If you work as a self-employed person for your old company this too is fine, you must invoice them for work carried out and wait to be paid. Part of the HMRC test is how 'separate' you are. So could you send your partner in to do your work for a day or two without having to ask permission? Could you go in late, and work an extra day? If your job is essentially for a specific task - like sort out the Smith contract - total invoice value £X, to be paid in five weekly instalments, you will probably get away with it, but if your old company treat you as if you were still an employee, and pay you anything based on hours, or days even, then it may fail the self-employed test.

Last thing - HMRC may want you to pay some tax on account, during the year, or they may just want you to pay it in full later. NI Class 2 is collected in chunks during the year, with Class 4 at the end with the tax, based on your accounts profit. As a self-employed person, there are many things you can claim for in your expenses, and these will decrease your profit. Drawings can be left in the business account or taken out as you wish. I'd absolutely recommend an accountant.

 

[Stephanie Harris]

Thanks I am contacting an accountant right now to book an appointment

 

[GLAbusiness]

I decided to start up a marketing partnership with a friend, I have left my job and am working for a company that uses a company called main pay to pay me, technically I think they say I am employed through Main Pay however I get the idea that I am self employed and that they just account for me and charge an administration fee. This is just something to pay the bills so that I know I am covered while I start the business.

You really do need to be clear on your business model. If you are self employed then I cannot understand how you can be "employed by main pay". As self employed you have clients (or customers if you prefer). You do work for the clients and you invoice them for the work.

It looks to me as though main pay is an umbrella company employing contractors.

You need to be very clear about what your actual status is.