Tax advice on 10k/yr side business

[taro211]

Hi all,

Looking for some tax advice please. I’m a higher rate tax earner and this year a side project I’ve been running will likely end up making about 10k/yr profit. It started making money >1k in this tax yr so I haven’t registered a business for it yet, but I plan to do so imminently.

One consideration is that with pension contributions I’m about 5k short of the 100k adjusted net income limit for receiving tax free childcare and free hours, which I’m keen to keep if possible (as childcare is a huge spend at the moment) but aware that the 10k extra would push me over this limit.

My wife is self employed as a sole trader and earns well under this limit.

Is there anything I can do to avoid passing this limit? I’m guessing I could pay half of it into my pension for example - any other ways people manage this without breaking any rules?

I don’t know the ins and outs of a limited company but wondered if perhaps that’s an option or if it would add too much complexity. Thanks in advance!

 

[MyAccountantOnline]

Hi all,

Looking for some tax advice please. I’m a higher rate tax earner and this year a side project I’ve been running will likely end up making about 10k/yr profit. It started making money >1k in this tax yr so I haven’t registered a business for it yet, but I plan to do so imminently.

One consideration is that with pension contributions I’m about 5k short of the 100k adjusted net income limit for receiving tax free childcare and free hours, which I’m keen to keep if possible (as childcare is a huge spend at the moment) but aware that the 10k extra would push me over this limit.

My wife is self employed as a sole trader and earns well under this limit.

Is there anything I can do to avoid passing this limit? I’m guessing I could pay half of it into my pension for example - any other ways people manage this without breaking any rules?

I don’t know the ins and outs of a limited company but wondered if perhaps that’s an option or if it would add too much complexity. Thanks in advance!

Pensions are an option, but I'd be looking at a limited company - that gives you flexibility to take some or all of the income to avoid exceeding the £100,000 net income.

If the company is trading the profits it makes aren't your income, it'll generally only be your income if/when the company pays you a salary or dividends.

 

[taro211]

Interesting - wasn’t aware of that. I’ve already paid some of the income from my business account into my personal account, would that cause any issues if I did want to go down the limited route?

Also, I recall seeing on another post that accountants fees for a ltd company are about 1k a yr, is that accurate?

 

[DWS]

Interesting - wasn’t aware of that. I’ve already paid some of the income from my business account into my personal account, would that cause any issues if I did want to go down the limited route?

Also, I recall seeing on another post that accountants fees for a ltd company are about 1k a yr, is that accurate?

It’s too late now to say the income already received is through a Ltd Co, the profits will need to be declared in your name on your self-assessment.
Once you get the Company set up then you can start trading through it.
£1k seems a bit high for what you mention above but impossible to say without knowing the amount of transactions and the work involved, although I am sure you would still be able to get it cheaper than that.

 

[Daybooks]

Interesting - wasn’t aware of that.

There are probably other things too. Taxes interact with each other and what might be a good scenario in isolation may not be so good when combined with others. Professional advice rather than a general forum advice would pay dividends when hopefully it will also eke out the information you didn’t think was relevant.

 

[MyAccountantOnline]

Interesting - wasn’t aware of that. I’ve already paid some of the income from my business account into my personal account, would that cause any issues if I did want to go down the limited route?

Also, I recall seeing on another post that accountants fees for a ltd company are about 1k a yr, is that accurate?

You cant back-date forming a company and put the income through the company now. If trading via a limited company is the right/best option for you you'd set up a company, and then transfer the business to the company - that's also something a good accountant will help you with.

It's very difficult to say how much your accountancy fees will be but certainly annual fees for a small limited company for accounts and a tax return can be less than £1,000 if you have a straightforward business and keep good accurate records.

 

[Ivel]

Hi, as others have mentioned your best way going forward is setting up a Ltd company. That way you can plan for dividends or even paying a salary to your wife, depending on her income. There might be a potential advantage if you sell your business to the company.

Costs fo Ltd Company accounts could vary, depending on your business, and the amount of transactions, VAT registration and most of all - the state of your accounts. If you do the bookkeeping yourself and your records are correct, it can be half of what you were told.

 

[taro211]

Thanks all, sounds like I need an accountant. Any advice on how to find a good one that suits my needs and charges a fair price?

 

[NicoJ]

Thanks all, sounds like I need an accountant. Any advice on how to find a good one that suits my needs and charges a fair price?

Maybe contact the ones on here who have helped you?

@MyAccountantOnline
@Pi Daybooks