Becoming a Consultant as well as working for a corporation

[Kierano]

Hi,

I currently work for a US Corporation and have a US colleague who has a consultancy firm who has invited me to do some ad-hoc consultancy for him. Can anyone advise me on what I need to do i.e. self-employed, limited company etc. Obviously I would like to avoid shed loads of forms. Maybe, rather than paying myself a wage, I could pay myself a dividend at the end of each year to reduce paperwork...?

Thanks in advance for your input...

Kierano

[Peter W]

Presumably you are based in the UK? If so, see this post.

[Kierano]

That's useful info., although - if at all possible - I could do with some kind of explanation around dividends vs paying oneself a wage in terms of whether this means less paperwork.

[Indizine]

Ultimately, do you want to reduce paperwork or reduce your tax bill? Most people make the decision based on paying less tax.

[Peter W]

That's useful info., although - if at all possible - I could do with some kind of explanation around dividends vs paying oneself a wage in terms of whether this means less paperwork.

In terms of paperwork they are probably about the same, but as Indizine says, that should not be your priority.

Most people find that dividends save them more tax than wages as there is no national insurance to pay on them.

However, the first thing you should decide is whether you want to be a sole trader or a limited company. How much money do you think you will earn per year from the consultancy?

[accountantpete]

If you earn over £40k you will be paying 40% on self-employed income(and rising probably in the next budget) in tax so as Peter and Indizine state you may want to look at alternatives - but these do involve more paperwork.

[Kierano]

In answer to Peter W's question, I expect to earn less than £5k per year on this. Also, useful info about dividends saving tax. Not sure on the differences between sole trader and limited company. I would literally be doing some ad-hoc consultancy in addition to my full time work which, incidentally, already has me in the 40% tax bracket.

In answer to Indizine, yep - I do want to reduce my tax bill although I admit that I find the prospect of loads of paperwork quite daunting, especially as I would effectively be carrying out ad-hoc consultancy for an existing consultancy firm. I don't really want to have to create my company to do this if I can help it!

[Indizine]

you can always pay a book keeper to do the paperwork from the tax you save!

[Kierano]

OK, so I've talked to my local tax office, who have suggested I put my query in writing to them. They say it's possible that this could be a 'simple PAYE scenario with a self-assessment at the end of the tax year'. I want them to confirm thresholds, as it's possible that up to £2500 I may not need to pay tax (to be confirmed of course) in which case I would just do £2500's worth of work (and still complete the self-assessment)! It would be great if the thresholds were published on the HRMC website but if they are, I haven't seen them...

[Peter W]

I want them to confirm thresholds, as it's possible that up to £2500 I may not need to pay tax

If you are already paying higher rate tax on your main job, then I seriously doubt that.

With respect, you seem very confused. I would recommend arranging a free initial meeting with a local accountant to chat things through.