Tax on income or company earnings in the UK

[foibles]

hi there - I wasn't sure where to post this thread - hopefully this is the right ....what do you call this?...section?

 

anyway - my girlfriend and I are in the process of moving to the UK.

 

She has her Tier 5 Youth Mobility Visa. I am a just over this age threshold, so going for the Entrepreneur Visa.

 

What I am hoping to clarify are the following;

 

1. If she contracts in IT (she is currently a Test / QA Manager) - what taxes should she pay? I presume she'll be classified as a PAYE, so she pays 20% on earnings up to 31,865, and then 40% on earnings over and above? Are there additional levies or taxes to be paid (for instance, in Australia, you don't just pay income tax...you also pay Medicare Levy of 2%, and you can be subjected to an array of other charges...Medicare surcharge, our recent 'flood levy', our new 'high income earner' tax, etc)

 

2. If I establish a business, and can only be self-employed, I presume this works much as it does in Australia....whereby my own 'wage' is deemed PAYE and would be subject to the 20%/40%, but whatever the company earns would be subject to a company tax rate? However (as with Australia), presuming I pull down all company income as a wage anyway...ultimately I would be basically a PAYE anyway?

 

3. In Australia, my company develops software, and I use my own leased apartment as a part-time office when I am not on customer sites. As a result, I can claim a portion of my weekly rent / lease costs as a business expense (I claim 10% by floor space, hence by value of the weekly lease). I presume this would be permissible in the UK as well?

 

Would appreciate anyone who has experience or expertise in these matters, sharing some pearls of wisdom for my benefit.

 

Thanks in advance,

 

Jeremy

[LouDYorkie]

Hi, I moved from the UK to Australia and can say that things do not work quite the same way in both countries. There are different ways to 'set yourself up' in the UK and depending on the way you choose to do it means there are different legal responsibilities/accountability, tax rates, allowable expenses, Dividends, National Insurance rates, NEST (pension reform-wouldn't affect such a small company yet). It is no more complicated than Australia but may be worth getting some advice specific to your situation and forecasting so that you go down the right route!

[Gbye grey sky]

hi there - I wasn't sure where to post this thread - hopefully this is the right ....what do you call this?...section?

 

anyway - my girlfriend and I are in the process of moving to the UK.

 

She has her Tier 5 Youth Mobility Visa. I am a just over this age threshold, so going for the Entrepreneur Visa.

 

What I am hoping to clarify are the following;

 

1. If she contracts in IT (she is currently a Test / QA Manager) - what taxes should she pay? I presume she'll be classified as a PAYE, so she pays 20% on earnings up to 31,865, and then 40% on earnings over and above? Are there additional levies or taxes to be paid (for instance, in Australia, you don't just pay income tax...you also pay Medicare Levy of 2%, and you can be subjected to an array of other charges...Medicare surcharge, our recent 'flood levy', our new 'high income earner' tax, etc)

 

2. If I establish a business, and can only be self-employed, I presume this works much as it does in Australia....whereby my own 'wage' is deemed PAYE and would be subject to the 20%/40%, but whatever the company earns would be subject to a company tax rate? However (as with Australia), presuming I pull down all company income as a wage anyway...ultimately I would be basically a PAYE anyway?

 

3. In Australia, my company develops software, and I use my own leased apartment as a part-time office when I am not on customer sites. As a result, I can claim a portion of my weekly rent / lease costs as a business expense (I claim 10% by floor space, hence by value of the weekly lease). I presume this would be permissible in the UK as well?

 

Would appreciate anyone who has experience or expertise in these matters, sharing some pearls of wisdom for my benefit.

 

Thanks in advance,

 

Jeremy

 

Your GF would have an initial tax free allowance too. Currently around £10k. However you need to also factor in National Insurance Contributions (NIC) which is just another tax on earnings essentially (notionally to cover state pension, health and welfare but it all goes to the same pot) at around a further 11%. So at the higher end (which is not that high if living in the south east of England) your notional tax rate is in excess of 50% - not sure how that compares with Oz.

 

If you are a self employed sole trader you pay tax only on profits (as distinct from drawings) which can be a problem if there is a mis-match. You have the option of incorporation and becoming a company director which makes you liable for PAYE however you can set up arrangements to draw down dividends (on profits) which is generally more favourable for tax purposes though if you take this route you will definitely need the services of a good accountant.

 

Yes, if you are self employed you can claim deductions against profit for a share of the rent etc in the way you describe. If you are running a business though you will need the services of an accountant who will hopefully guide you. If you are looking to employ people too you will need plenty of help setting up too. Employing people comes with a whole raft of obligations and regulations but I imagine that is also the case in Oz.

 

Hope this sketchy overview helps a little.

[foibles]

GGS - many thanks for your kind explanation. At the risk of taking a liberty here, may I ask if you would test my assumptions and calculations here (using the GF as an example)?

 

If she were to work 225 days in a calendar year, at the rate of 400 pounds per day, this is equivalent to 90K GBP.

 

I presume that she would be eligible for the personal allowance, and that this 10K allowance would be applied to the 90K, hence reducing the taxable amount to 80K?

 

I gather the 11% contribution to 'the pot' (NIC, etc) is a flat rate on the entire amount (of 80K taxable income) - so 8800GBP

 

From the Gov.UK website I see there is a 20% rate up to 31,865 - so 6373 GBP in tax on this amount.

 

And for the balance (80,000 - 31,865 = 48,135) I see there is a rate of 40% on this, which is 19,254.

 

So, as a generalisation, on earnings of 90K, one would expect to pay approximately 8800 + 6373 + 19254 = 34,427.

 

If this is correct (and of course one or more of my assumptions could be very very wrong) - it seems as though she'd be paying 34,427 in income tax and 'other contributions' on her 90K income....which I calculate as around 38-39%?

 

I'm not quibbling over tax rates nor am I complaining about these rates being too high or too low - I am just trying to become 'more learned' in these general taxation rules before we head on over.

 

Again, my thanks for the time you have taken to assist me on this.

 

Cheers,

 

Jeremy

[Gbye grey sky]

GGS - many thanks for your kind explanation. At the risk of taking a liberty here, may I ask if you would test my assumptions and calculations here (using the GF as an example)?

 

If she were to work 225 days in a calendar year, at the rate of 400 pounds per day, this is equivalent to 90K GBP.

 

I presume that she would be eligible for the personal allowance, and that this 10K allowance would be applied to the 90K, hence reducing the taxable amount to 80K?

 

I gather the 11% contribution to 'the pot' (NIC, etc) is a flat rate on the entire amount (of 80K taxable income) - so 8800GBP

 

From the Gov.UK website I see there is a 20% rate up to 31,865 - so 6373 GBP in tax on this amount.

 

And for the balance (80,000 - 31,865 = 48,135) I see there is a rate of 40% on this, which is 19,254.

 

So, as a generalisation, on earnings of 90K, one would expect to pay approximately 8800 + 6373 + 19254 = 34,427.

 

If this is correct (and of course one or more of my assumptions could be very very wrong) - it seems as though she'd be paying 34,427 in income tax and 'other contributions' on her 90K income....which I calculate as around 38-39%?

 

I'm not quibbling over tax rates nor am I complaining about these rates being too high or too low - I am just trying to become 'more learned' in these general taxation rules before we head on over.

 

Again, my thanks for the time you have taken to assist me on this.

 

Cheers,

 

Jeremy

 

This is more or less right. NIC used to be a flat rate. It is a lot more complicated than that nowadays with different rates and limits which you can google. The personal allowance applies only to tax and not NIC. I struggle with links on my IPads. But if you assume around 11% on the whole amount for NIC you wont be far out.

 

There are other gotchas to be aware of if earnings were somewhat higher than £90k such as you start to lose your £10k allowance once you are above around £100k. I should add that I only have a rough idea here as have never come remotely close to earning these levels.