Self employed and getting paid, whats best?

[theflyingbus]

I am fortunate enough to have a commercial flying job, with a good company. I am even more fortunate in that I am to start commercial instructing on a part time basis. I currently instruct, examine at PPL level, getting paid directly by the flight school, who sort out tax etc.

In my new job I will have to invoice the company monthly and they will pay me a gross figure, so I now have to pay tax, NI etc. I do not know of an accountant, so was looking for some advice on where to start. I have heard of becoming VAT registered and starting some sort of company eg "theflyingbus flight services" or maybe even both, in order to give Mr Darling as little as possible, but beyond that have not got a clue!

I am a British citizen, higher rate tax payer and hopfuly the extra income will be £500+ per month.

Any help or starting points will be greatly received

thank you

[MIKECR]

I was in exactly the same scenario just a few months ago. Its fairly straight forward(having liased with family accountant) - its simply classed as additional earnings. You can download the form from the tax/revenue website and must submit it within 90 days of starting your FI work. Then in April, submit a self tax return. Make sure you keep a log of everything including things like mileage to/from the airfield etc. The form only takes 2 mins to complete.

[Kiltie]

Having recently taken some professional advice on this, be mindful that HMRC are supposedly irritated by "service companies" who in reality only service one organisation. Their argument is that this makes you to all intents and purposes an employee and may try to argue this to the individual who "runs" the company. However, if you are supplying or servicing more than one customer this is conversley a strong postion to be in.

If your company was engaged by your customer via an agency such as Wynnwith / Brookfield etc. the risk to you of HMRC testing is diminished, as it is the agency who will cop the flak so to speak.

Maybe you have a case in that since you are already in PAYE employment by an employer, you have to be self employed for additional income? I don't know.

Not teaching you to suck eggs but is your existing employer happy for you to be working part time elsewhere? This usually has Contract of Employment and Flight Time Limitations issues.

If you are already paying tax in the higher bracket then having a company set up for additional income will mitigate your tax liability to (I think) 23%; act as a sole trader and you are liable for 40% of all your extra income (less your expenses).

I'm not professionally qualified in matters of taxation but what I've said above is what I remember from a professional meeting some weeks ago.

Good luck with your new venture though.

[theflyingbus]

Both of you, thank you

Mike this sounds too simple! So I get the new job to make a cheque out to me every month and once registered with HMRC just complete the self assessment form once a year and enclose a cheque? Great! What about VAT. I have heard that if I register I can claim the vAT back on anything involved with "work". Even future training courses etc and even back dating this upto 3 months?

Kiltie. I currently have a sign off from my employer to undertake "other flying", but thanks for raising it. I instruct part time and am currently on their pay role, although I would change this in the future, so that I would have two other companies that I provide services too, hopefully that will keep the guys in suits happy.

[MIKECR]

No probs. Like you, im in a full time job. The FI work is on a part time basis. What I did(on accountants advice) was submit the form saying I was 'self employed', making 'additional earnings'. I can then invoice the FTO monthly for my hours flown at the relevant rate. Its then a self decleration tax return at the end of the year. There is some debate as to whether one should set up a limited company but I believe(again on accountants advice) thats only applicable for the purposes of having public liability insurnce. If the FTO has sufficient cover, then you wont need to be ltd.

Kiltie makes some good points however in relation to the fact it may be just the one FTO you are working for.

Oh and as for the VAT question......I was advised to submit my tax return showing the cost of the FI course as expenditure. We'll wait and see what happens!:\

[Kiltie]

Be careful not to jump in to the opportunity of foregoing the PAYE employee position with your existing full time employer and convert to being a contract self-employed pilot....this usually means when it comes to letting people go you are the first out, as you aren't an employee but merely a disposable expense such as the coffee and biscuits bill! Overly-simplistic I know, and I am sure some agency pilots will now leap in with the merits of their arrangements.

From what you say VAT registration is the way to go. If all your customers are VAT registered then you are no more expensive to them than one who isn't, as they are reclaiming your VAT element. Indeed you may reclaim VAT for expenses incurred with direct connection to the business .

For your own protection, you SHOULD (not must) use an accountant for your annual balance sheet & profit and loss accounts. By doing your own book keeping you can reduce their fee to two or three hundred quid pa, and it is peace of mind subscribing to their insurance policy (circa £150) against HMRC investigations which allows you to use them to fight your corner without incurring a huge bill.

[theflyingbus]

OK point taken thanks
Kilte
But I am not sure that I understand the first part. So what I do outside of my main employment, or more importantly how I get paid, will directly effect my main employment? I assumed that it would not change my main employments pay in any way? The extra money would be exactly that and I would just pay the appropriate tax's on it. Like I said, I do not have a scooby about any of this, your time has been much appreciated! Thanks

I have arranged a telephone call from "business" link, a government website offering free advice on such matters, have you ever heard of them? Im scepticle about the free bit, it either is not free or the advice is not much good? Surely

Mike
I can not find anything on the HMRC website about "additional earnings" any clues please!

TFB

[Kiltie]

Re the first part, what I mean is don't give up your existing full time position as an employee, and change to being self employed doing the same job. Keep the self employed status for only the additional work.

[MIKECR]

Hopefuly this link works. The form is at the bottom:-

http://www.hmrc.gov.uk/leaflets/se1.pdf

[Tigh Wire]

Hi all. Newbie here. Kiltie is dead right. Do not give up your employed status. You lose a lot of advantages re pension, sick pay employment rights etc, also while it is easy to go from employed to self employment, it's not so easy going back. Get an accountant first, find one who specialises in small businesses.

Ask around, your plumber, shopkeeper etc. Also remember that working for one employer as self employed does not necessarly make you such in the eyes of the taxman. Your accountant will have no trouble sorting out your tax situation and in my own experience saves much more than he could ever cost. You are in what I always think to be an ideal position, a good job with a nice little legal earner on the side. Don't ruin it. Best of luck.

[theflyingbus]

Kiltie
OK I understand, sorry. No I would never do that, plus I dont think it is a n option.

Mike
I will give it a try, ta

[theflyingbus]

Could you check pm's please Mikecr

Thanks