Just starting out as Self employed and tax question

[Pickledhen]

Hi, for context I am retired officially, took earlyish retirement as I just could not face my job any more. Years of bullying and work stress.

Now just about to start a small job to supplement my retirement. Basically I live in a holiday area and there are alot of airbnbs and I will start cleaning several apartments. I will get a fee for each clean paid to my account. Due to my pension I will be over the threshold of £12,500 for tax so my thinking is I need to keep 20% of my pay for tax purposes and fill out a self assessment form for end of January 2025.

Is there any benefit to me setting myself up as a small company so I can claim self employment benefits in doing so?

I am not really up to speed with tax, especially on a self employed basis, so I am just voicing the thoughts going through my head rather than knowing what I'm talking about, if that makes sense so go easy on me.

If there is anything else I should be aware of ? ....all advice will be gratefully received.

Thanks in advance.

What do you mean by self employment benefits?

But the costs associated with being a limited company far outweigh any savings you are likely to make. Best to be a sole trader.

Yes, same, what do you mean by benefits?
Also, if it’s just you and you’re not intending to employ anyone else then a sole trader will be more cost effective than a Ltd company.

What self employment benefits are you talking about? What sort of company are you thinking of setting up? You can offset expenses against your income from your self employment income.

What are self employment benefits? I wouldn't add unnecessary cost and admin by making a simple thing complicated

https://www.litrg.org.uk/working/self-employment

There are no benefits other than the state pension which I assume you currently get. If this is your only form of income, I'd recommend looking into pension credits, you can then look at housing benefit for rent etc. Any other small amounts of income/private pension will push you over the threshold so sometimes it's genuinely not worth working in retirement.

If, by "self employment benefits" in the context of running your own limited company, you mean tax/NI savings, then know that these have been eroded over the last few years and would probably not be worth the effort if you only intend to make a small part-time income to supplement your pension.

And you'd probably have to pay an accountant to do the ltd co accounts and corporation tax return (especially as you say you're not up to speed with tax), whereas you'd probably be able to do your own self-assessment tax return as a sole trader if you were relatively numerate and able to digest the HMRC guidance.

But yes, do put aside money for your tax. You'd be paying tax on your profits, which would be lower than your income if you have tax-deductible expenses that you can offset against your income.
The percentage depends on whether you a basic rate (20%), higher rate (40%) or additional rate tax-payer (50%).

Apologies, I didn't mean 'benefits' as in payments I meant as in tax sparing or offsetting expenses sort of thing.

Really helpful feedback from you all though. I am definitely in the lower tax bracket and just on the right side of 60 so I'm still a way off the state pension. I get my occupational pension and this is to supplement my pension for the time being.

Based on what has been said I will stick.with the sole trader status as it appears less complicated apart from anything else.

Thankyou.

You can offset expenses as a sole trader.

Do the maths but I don't think it's worth it for cleaning. You get an allowance anyway (was first £1000 tax free) you need to register for ni too if you are under retirement age, though you may be nil rated if you earn under £12500 from your second income

Thanks again. MY work pension is @12 k , so any money above that will be taxed I would imagine. I do t think my overheads will be exorbitant but was thinking if my hoover packed in and I needed a new one kind of scenario. I have the full quote of NI years already so I dont know if I need to register for NI payments ??? The likelihood is though that I won't be earning more than £ 900 a month in a good month and as I am coming into the winter it will likely be 1/3 or less of that I suspect. The summer months may be different and so it will balance out I suppose.

That's not how NI works. You have to pay until state retirement age if you're earning enough.

You pay Class 4 NIC on self employed profits, but it sounds like you'd be just under the lower profits limit. Keep it in mind though as it will affect how much you need to set aside for your tax bill if your profits are higher than you're currently projecting.

https://www.litrg.org.uk/working/self-employment/nic-self-employed#:~:text=Class%204%20NIC%20is%20based,22%20to%202024%2F25).

You need to be a bit careful that any work expenditure that you offset against your tax liability is wholly and exclusively a work expense. If you buy a new hoover, but you are using it at home, as well as your cleaning work, you can't offset it. If you buy a load of cleaning products that you only use at work, you can offset them.

That's not correct. You can apportion a % as a work expense. I do this with my phone as it is used for personal and business use.

One thing to be aware of is that the tax bill as a sole trader is more following the first year as you need to pay the tax bill for the year just gone plus a ‘payment on account’ for the next year (half immediately and then half the following July). They calculate this based in what you earned the previous year and you pay/receive any difference later. It balances out in the end but do make sure put side enough for the first bill.

Sole trader for sure so that you can offset expenses.

actually pretty easy, you have to register as a sole trader and you just list your overall money in and money out each tax year and any other income.

Yes, it can be a nasty surprise the first time you do a tax return!

If you started your business after the end of the tax year 2024 you will not have to pay any tax until Jan 2026 as you will submit your earnings before the end of tax year 2025.

Crikey they don't make it straightforward do they. Really glad I asked, it is scary how uneducated i am to the world of tax.

I am very grateful to everyone taking the time to keep me right ! Thank you.