Hi Trevor
A few more points to consider
VAT
Registration limit is a Turnover of £73,000. No need to register if less than this.
Identify your customers. If customers are not VAT registered then VAT will be additional cost for them.
Will you be spending a lot on capital expenditure on tools, equipment? This is where the VAT reclaim may be beneficial.
You will be able to reclaim the VAT on materials expenditure but you will have to charge VAT to the end customer - so it is fiscally neutral to you
Income tax
Individuals/Sole traders/Partners in business all pay income tax on taxable profits for a tax year.
First £7,475 is tax free, the next £35,000 taxed at 20%, then 40% on profits in excess of £42,745.
Class 2 National insurance payable at a rate of £2.50 per week and Class 4 NIC at 9% on profits in excess of £7,225.
Corporation tax
Small Limited companies (profits less than £300,000) pay Corporation tax at 20%.
Income extracted as dividends comes with a tax credit which means that for income less than £42,475 then is no further income tax to pay.
Salary taxed at 20% up to £42,475 with NIC payable at 11% by you and 13.8 % by the company.
Suggestion - Partnership with Mrs BigMac
Partnership with Mrs Bigmac – all income taxed at personal tax rate of 20% with NIC payable at 9% and class 2 at £2.50 a week.
Partnership uses both personal allowance of £7,475 so potential to earn nearly £15,000 tax free. Remainder of income taxed at 29% (IT at 20% NIC at 9%)up to £70,000.
Example
Company profits £70,000 - CT at 20% equals £14,000. Retained income £56,000
2 person Partnership profit £70,000, IT at 20% equals £11,010, NIC equals £5,260. Retained income £53,730.
The Partnership route results in more tax to pay. However the tax saving could soon be absorbed by additional costs of having to trade through a company – company accounts, annual returns, possibly more scrutiny, service company legislation, etc
CIS
As a contractor you will need to;
- Register with HMRC – online or by telephone
- verify the sub contractor - HMRC will then instruct you in what to deduct – 0%, 20% or 30%.
- Pay tax to HMRC by 19th of the month
- Provide a statement to the sub contractor of gross payment and tax deducted.
Good luck with whatever you choose.
Moore