UK Higher rate PAYE employee and limited company?


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I have recently stopped working and I have been offered some part time business development consultancy work outside IR35. It is likely to pay me £1000 - £2500 a month for probably 6 months with a low amount of expenses (it could last longer than 6 months). I am also looking for a new full time job (which may be inside or outside IR35), but I will hopefully continue to be a higher rate tax earner through my full time work. If I plan to find higher rate tax work as my main job, my questions are:

1) Is it still more tax efficient for me to set up a limited company for the part time business development consultancy work?
2) If I have exceeded my personal tax allowance already through my full time job is it it most tax efficient to only pay myself dividends in the Limited company? If so, why is this if above the £2k tax free dividend I will pay 19% corporation tax and 32.5% dividend tax (51.5% compared to 40% PAYE)?
3) If I am better off not paying myself a salary from the ltd company, is there any advantage/disadvantage to signing myself up to be paid PAYE through the company? Will it just give me extra flexibility if needed for no cost?

Thanks,
Sarah
 
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Truemanbrown

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As you state in your question, the problem will be extracting profits in the most tax efficient manner. And the answer will get more difficult when the Corporation Tax rises come into place (unless the new Truss Government does something about it)!

Given the company's turnover will be a maximum of £30,000, the CT changes should not affect you. But you will need to consider it if the non-IR35 incomes goes past the intended 6 months and starts rising to more than £50,000.

Given the intention to get a full time job and that your earnings will be into the higher rate tax band, then you would take out £2,000 as a dividend to cover the dividend allowance.

With the remaining profits, you have a couple of options to save tax:-

1. Set up a company pension scheme and pay contributions into it. This will be deductible expense for Corporation Tax purposes;
2. Take out all profits as dividends. Set up a private pension scheme and pay contributions to it using the dividends you received. You would get higher tax relief on the pension contributions.

The problem with these two items is that you would not receive the pension until you receive the age of 55!
 

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