Job, Self Employment and Tax?

[jcb33]

Hey all,

Just after a bit of advice here, I currently work in retail earning enough to pay the bills, eat and have a bit left over each month, and on top of this rent out the spare room in my house for a little extra income. Now I have been asked to join a small start-up company, Allowing me to finally put my degree to use!

However the company will not be earning any income until after the release of the first product, which will be several months down the line. I am happy with this as it is allowing me to gain valuable experience, while keeping my current job (Not so much of a gamble). To make it fair the company looks as though it will be split giving equal ownership to each of the initial group members working within it, and providing equal shares of any profits at the end of the first project which are not reinvested into the company.

Now comes my main question, I work in retail, and am renting out a room in my house for extra income already. Will taking part ownership in this company clobber me with tax, or will I continue to earn in the same manner as normal until we hopefully start to turn a profit?

Thanks for any advice!
Jcb33.

 

[unwashed potato!]

you'll earn the same until the end of the next tax year any way, so say you start trading this coming April 2011, you'll then be able to keep earning until the next April 2012 and keep all the tax (but not vat) until the following January 2013 when it has to be paid, and then you'll only pay tax on profit and from the sounds of it you're already over your limit so that'll be 20% of your profit.

the only thing you'll want to start paying soon is national insurance if it looks like you'll be earning more then the £100 (not sure exact number) limit each week for each partner.

not an expert in this so could be wrong

 

[Pestilence]

you'll earn the same until the end of the next tax year any way, so say you start trading this coming April 2011, you'll then be able to keep earning until the next April 2012 and keep all the tax (but not vat) until the following January 2013 when it has to be paid, and then you'll only pay tax on profit.

This. Go for it.

 

[Vonhelmet]

Is it a company you're buying into or a partnership? If the former, you're not self-employed, so they'll have to tax and NIC you via PAYE. If the latter, you'll be self-employed and will have to contact HMRC and register as self-employed and register for self-assessment, and will have to do your own tax return and pay class 2 and 4 NIC.

NIC gets horribly complicated when you are both employed and self employed, but an accountant can work it out for you, or you can claim a rebate from HMRC at the end of the year.

Are you paying tax on your rental income or not? If it's below £4,250 a year and the tenant is allowed use of the shared facilities in the house, then the income is exempt.

I'm a Chartered Tax Adviser. This is not tax advice. You are not paying me and we have no engagement. Don't take my word for it.

 

[daver]

It depends on how you are going to receive the money from the company. You talk of 'sharing out the profits' this sounds like a dividend. If you are not employed by the new company merely taking a share of the profits then these are dividends and subject to witholding tax, if you are a higher rate tax payer you will have to pay some extra. Setting up a company and paying yourself dividends has been a convenient way of NI avoidance recently, I am not sure they have cracked down on it, but it might be applicable to pay dividends in your case. Will there be people employed by this company in the normal course of business?

If this is the case your PAYE will continue as you are now, I assume you are claiming the relief for renting the room in your house.

 

[Bat]

Will you be a Director of the company? If you're not earning PAYE from it or taking payment as a supplier/service provider then you should be fine. Register for Self Assessment and declare any dividends on shares you receive.

 

[Vonhelmet]

You can still use dividends to get cash at a lower rate than salary, but you may fall foul of minimum wage requirements, though as I recall directors can be exempted from the minimum wage.