Tax on side hustles

I'm in the process of setting up some income streams on the side (online businesses). Current situation is I'm a 45% tax payer. I assume the default situation is I'd therefore pay 45% tax (plus 2% NI) on any profits. Issue I have with this is given the amount of time it takes to generate this income and the work put in (at the beginning anyway) the hourly earnings are far less than my 9 to 5 after tax and getting to the point where I'd begin to think it probably isn't worth continuing with.

I know I could incorporate a business and pay corporation tax at a lower rate however if I took money out of the business am I right in assuming I'd pay 45% on that (as well as corporation tax?).

You wouldnt pay corporation tax unless you went LTD…why cant you be a sole trader?

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Originally Posted by Franky Four Fingers

You wouldnt pay corporation tax unless you went LTD…why cant you be a sole trader?

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Can I do that as well as my 9 to 5 where I am a salaried employee?

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Originally Posted by ryanb741

Can I do that as well as my 9 to 5 where I am a salaried employee?

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You can be either however i guess it depends on what you intend to do with the money you earn from the business. If you ring fence it and it sits in the business youll only pay 19% corporation tax if you earn under 50k from it. You’ll only pay income tax when you obviously take it as a wage, whether that be via a dividend or salary.
Sole trader youll pay income tax on any profit thats made by the business from the get go whether you take it or not . Im not a financial adviser and I'm sure someone will put me right but thats how I currently understand it.

You should have a £1,000 trading allowance which will allow you to test the water before making any of decisions. It's not a lot, but I thought it was worth a mention

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Not a great difference now between Ltd and sole trade from a net tax perspective so might be what suits you best i.e. limited liability option and the ability to pay dividends to the wife.

I get that higher rates reduce the incentive to earn more, unless you can pay the extra into your pension, but think of it as making a greater social contribution [emoji6].

Youd need to speak to a pro but im guessing youd also benefit from taking 2k dividends without paying tax on them? You could top your pension up with it?

Dave makes a good point also in that if your wife is a basic rate tax payer then her dividends would be at that rate, but 25% corporation tax is effectively deducted from profits before dividends can be paid on the net balance. You would have to run the numbers or better still discuss with an accountant

Set up separate venture as ltd business.
pay corporation tax as previously mentioned and pay your wife a dividend (I don't think she works)
Will save you a lot.
You can also pay your wife a wage through the business if she assists you in it.
Chat to the accountant.

Pension contributions from a Ltd company are classed as a allowable business expense

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Originally Posted by Franky Four Fingers

Youd need to speak to a pro but im guessing youd also benefit from taking 2k dividends without paying tax on them? You could top your pension up with it?

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Down to £1k now and dropping to £500 in a few days unfortunately.

Doing it via a Ltd company with wife as director should result in lower taxes - using her personal allowance and also enabling putting money into a pension for her, which will mean lower taxes in retirement too.
Does mean more admin and accountancy fees though.

Thanks gents.

As it is an online business (sold via Amazon and Etsy) I think I'll be able to incorporate it in Thailand and have payments sent there. Tax will be 10% that way, much better. Although about 80% of the revenues will be from US customers so I'll need to check if I have an obligation with the US authorities, I guess not because many companies sell internationally and as long as local VAT etc is paid I don't think they need to be registered in that country and pay corporation tax there.

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Originally Posted by ryanb741

Thanks gents.

As it is an online business (sold via Amazon and Etsy) I think I'll be able to incorporate it in Thailand and have payments sent there. Tax will be 10% that way, much better. Although about 80% of the revenues will be from US customers so I'll need to check if I have an obligation with the US authorities, I guess not because many companies sell internationally and as long as local VAT etc is paid I don't think they need to be registered in that country and pay corporation tax there.

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Foreign companies can be complicated but, broadly speaking, if you're running the company from the UK it would be subject to UK corporation tax plus UK residents pay tax on their worldwide income.

If your wife isn't domiciled here then there are viable options for the more wealthy https://www.gov.uk/tax-foreign-incom...led-residents]

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Originally Posted by Halitosis

Doing it via a Ltd company with wife as director should result in lower taxes - using her personal allowance and also enabling putting money into a pension for her, which will mean lower taxes in retirement too.
Does mean more admin and accountancy fees though.

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Absolutely this. If your wife isn't working she can take salary (means NI pension qualification) and dividends together to about 50k with fairly minimal tax (after Corp tax been paid), and can also expense a fair bit eg business travel, computers, car etc.

If you're toying with the idea of setting up on Thailand, I think a more typical route for Amazon sellers NOT based in the US, is to get incorporated in Delaware... Don't know the details (like most!) but worth a google

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Originally Posted by deepreddave

Foreign companies can be complicated but, broadly speaking, if you're running the company from the UK it would be subject to UK corporation tax plus UK residents pay tax on their worldwide income.

If your wife isn't domiciled here then there are viable options for the more wealthy https://www.gov.uk/tax-foreign-incom...led-residents]

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I’m not saying you’re wrong , but that seems so bizarre . I thought the company would pay local corporation tax rates -then you’d pay UK income tax on money earned from it . Assuming the company has staff and is running itself abroad .

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Originally Posted by eagletower

I’m not saying you’re wrong , but that seems so bizarre . I thought the company would pay local corporation tax rates -then you’d pay UK income tax on money earned from it . Assuming the company has staff and is running itself abroad .

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I did say if it was being run from the UK, whereas you refer to it being run from abroad and that's a key difference.

A company is generally t/a resident in the UK for tax purposes if it's incorporated here or central management/control is here.

https://taxsummaries.pwc.com/united-...rate-residence

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Originally Posted by deepreddave

I did say if it was being run from the UK, whereas you refer to it being run from abroad and that's a key difference.

A company is generally t/a resident in the UK for tax purposes if it's incorporated here or central management/control is here.

https://taxsummaries.pwc.com/united-...rate-residence

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Thanks for clarifying that explains it.

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Originally Posted by deepreddave

Not a great difference now between Ltd and sole trade from a net tax perspective so might be what suits you best i.e. limited liability option and the ability to pay dividends to the wife.

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Originally Posted by Halitosis

Doing it via a Ltd company with wife as director should result in lower taxes - using her personal allowance and also enabling putting money into a pension for her, which will mean lower taxes in retirement too.
Does mean more admin and accountancy fees though.

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Just to echo some of this based on recent conversations with my accountant. The reduction in NI and whatever recently has meant that there now isn't much in sole trader vs limited but if (when :-) )I start having silly cars again it will be tax advantageous to remain as Sole Trader.

The only changes my accountant is suggesting is we could look at limited again 'if and when I meet someone I'm comfortable settling down with in the long term' as this brings in the wife as director business as referenced above.

Of course this could all change with a new government.

Thanks gents for the advice.

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Originally Posted by ryanb741

Can I do that as well as my 9 to 5 where I am a salaried employee?

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No idea if such terms ever were enforceable, and whether they are now, but I had an employment contract which forbade (is that the word?) any outside business interests.

More generally, this looks interesting/helpful:

https://www.gov.uk/government/public...ine-to-the-usa

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Originally Posted by deepreddave

I get that higher rates reduce the incentive to earn more, unless you can pay the extra into your pension, but think of it as making a greater social contribution [emoji6].

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Just like our altruistic sea quirt political class do :-)

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Originally Posted by David_D

No idea if such terms ever were enforceable, and whether they are now, but I had an employment contract which forbade (is that the word?) any outside business interests.

More generally, this looks interesting/helpful:

https://www.gov.uk/government/public...ine-to-the-usa

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In theory that would stop anyone having a BTL etc!

It's mostly passive anyway and I'll use the idea of paying dividends to my missus

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Originally Posted by ryanb741

Thanks gents.

As it is an online business (sold via Amazon and Etsy) I think I'll be able to incorporate it in Thailand and have payments sent there. Tax will be 10% that way, much better. Although about 80% of the revenues will be from US customers so I'll need to check if I have an obligation with the US authorities, I guess not because many companies sell internationally and as long as local VAT etc is paid I don't think they need to be registered in that country and pay corporation tax there.

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You might get away with a company being incorporated outside of the UK, and it's easier with online businesses. However any money you take out whether as salary or dividends will be subject to UK tax. I'd think very carefully before going down this route, it could lead to more arseache than you think.

So many people now are doing side hustles, it’s got to the point that most products/niches are very saturated, this results in paying hefty PPC (pay per click) to pump your product to the top of the page or just show on page 1, often killing any profit.
Add in problems like hijacking of products, competition from Chinese sellers, selling platforms increasing their fees and as mentioned tax rates increasing and it’s getting very hard to make good money without a lot of consistent work, not as passive as a lot of people think!

I’m not saying you can’t do it, just that it’s far more difficult now, lots of youtubers claiming 5k/25k/100k+ profit a month but 95% is fudged or bullshit to get the clicks.

Put it this way, if you made 10% profit after all costs (inc ppc) that’s £1.50 on a £15 product so you have to make £15k in sales to get £1500 profit, sounds okay when you look at FBA (fulfilled by Amazon) as you just ship the product to them and they deal with all the storage, postage hassle, but in the real world it can be a lot of work just to get a quality product to that point of sale, all the while your only taking £1500 after you have sold all that stock, the plus point point is if you have done your homework and it’s a great seller that £15k could sell in a week, problem then is restocking as Amazon hammers sellers for going out of stock so you need that constant flow of inventory, this can then cause cash flow issues as you have to stump up to keep buying stock.

I could go on but this is just a few basics of online selling, yes, it can be rewarding but it’s not the easy side hustle many think it is..



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Might potentially be simpler, more financially rewarding for them if Ryan persuades his Missus to go out and get a job.

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Originally Posted by ryanb741

In theory that would stop anyone having a BTL etc!

It's mostly passive anyway and I'll use the idea of paying dividends to my missus

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As I say, no idea if such employment contract terms are enforceable where they exist. Given the recent post here about someone losing a well paid job for using a mobile phone while driving, I’d personally be erring on the side of caution and checking.

OK so I'm now at around £15-£20 profit a day, small beans I know but it is very scalable if I create more products and someone mentioned earlier the £1k a month trading allowance and profits could easily go past that in a month if I scaled it so I guess I'll need to talk to an accountant.

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Originally Posted by ryanb741

OK so I'm now at around £15-£20 profit a day, small beans I know but it is very scalable if I create more products and someone mentioned earlier the £1k a month trading allowance and profits could easily go past that in a month if I scaled it so I guess I'll need to talk to an accountant.

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I think Ryan, but don't quote me, that the trading allowance is on turnover not profits. I'd guess with profits of £15-£20 a day (or £450-£600 a month) your turnover is already over that unless you've got a brilliant profit margin.

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Originally Posted by Ruggertech

I think Ryan, but don't quote me, that the trading allowance is on turnover not profits. I'd guess with profits of £15-£20 a day (or £450-£600 a month) your turnover is already over that unless you've got a brilliant profit margin.

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Yes, it’s on turnover. It’s also per year, not per month.

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Originally Posted by b-rad

Yes, it’s on turnover. It’s also per year, not per month.

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Thought so, and forgot its yearly too, cheers.

Ah thanks gents. £1k per year?!!? Wow HMRC are generous lol! In that case I'm miles over as profit margin is under 30%!

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Originally Posted by ryanb741

Ah thanks gents. £1k per year?!!? Wow HMRC are generous lol! In that case I'm miles over as profit margin is under 30%!

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I thought the allowance lets people sell their “man drawer” stuff on eBay without worrying about tax

Dedicated side hustle - you will expect to pay