Perm employee with an already setup brand new Ltd company - how to handle freelance?

[BradMcA]

Hi,

After a recent redundancy I looked for both perm + contract work, and ended up with a 40% tax bracket paying perm job, and current clients of my ex employer wanting to work direct with me (ex employer is fully aware and OK in writing about it).

As I was looking for work I setup a Ltd company, so that's already in place but not trading or ever has been.

What do I do about earnings from freelance work while being a perm employee? (nothing in my contract forbidding me extra work by the way).

Get professional indemnity insurance, and take additional earnings as self employed?, or as Ltd company?, can I just leave all the earnings in a business bank account for a rainy day? - how to handle the extra earnings without loosing 40% of them is what I am wondering.... can anyone help based on the above?.

TIA,
Brad

[ASB]

Are the clients of ex emploer prepared to work with you as an individual? Send them invoice, do accounts, declare on satr, pay tax at your marginal rate. Plus ni.

Are the clients of ex employer prepared to work with your company? Accumulate the profits paying ct. Dont take any salary or dividends until you are not a higher rate taxpayer. Or consider whether a pension may be a good idea and make company contributions.

or make some non taxpayer an employee and pay them 10k. Accepting the risk of this ultimately not being trade costs and not being .chargeable to ct. Or being chargeable to you as income. Do the same with a few shareholders who are basic rate payers. But consider the S660 implications.

[jmo21]

how to handle the extra earnings without loosing 40% of them is what I am wondering

This is the main question right?

You want to have your cake and eat it too.

Well, with your ltd, yes you can keep the profit it in there and drip feed it out over time into your pension or out as a small salary and dividends if your permie job was to change and you were no longer in the higher rate with that alone.

[BradMcA]

Thanks for summarizing the options ASB and yes jmo I do enjoy making the most of my cakes legitimately.

I think the option below sounds like the most straightforward leading one given the client is prepared to work either way with me as most of their software was developed by me and I can take care of their outlined plans for the next few months, I have another one or two clients likely in a couple of months and suspect that my full time job may not stimulate me much from what I see so far..

"Are the clients of ex employer prepared to work with your company? Accumulate the profits paying ct. Dont take any salary or dividends until you are not a higher rate taxpayer. Or consider whether a pension may be a good idea and make company contributions."

[ASB]

There are some other issues to consider now.

ir35 risk? If there is any then you are in effect going to have to pay yourself the fees less legitimate exps. In an ir35 caught case about the only mi imisation strategy would be pension contributions.

possible risk of becoming a close investment company. Unlikely, but ultimately possible. This would need the majority of the company earning coming from some sort of investment return on its retained funds.

If you revert to a standard rate payer then you could draw divis to the limit in order to get some funds out.

equally at some point winding up and taking capital distributions can be tax effective.

You could consider share buy back in order to get capital distributions. However that is a subject rarely discussed and may be ineffective, though it is of course used by major companies. The point here being that capital taxes would give you additional allowances if you can find some way of returning retained capital.