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Having closed a couple of good deals in the past month, I project my pre-tax income for this tax year to be around £50K, which is significantly higher than my last year's one – and also above certain tax limits.

The question: What is the most effective way for minimizing tax liabilities on this?

The circumstances:

  • I'm currently registered as self-employed with HMRC, but I'm open to revisiting this decision.
  • Money has to be logically on my name, so I can shovel it into ISAs -parking it in a company is out.
  • Yes, I have talked to accountants, they seem to be reluctant to getting into the calculation details.
  • Looking for more, than general advice: need at least a napkin calculation on how much money will remain post-tax using the specified method.
  • Looking for totals, with all government-costs considered. e.g. being self-employed means both income tax, and class4 NI.

Thanks in advance.

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    Are you running a business or are you on some sort of commission deal here? There really isn't enough information that you're giving us on this. Also, if you're running a business the bit about the money having to be in your name so you can put it in ISAs is abit of a red herring IMHO; there are other considerations that should guide you re company formation than a single potentially tax-advantageous type of savings and investment account. Commented Jun 5, 2011 at 5:50
  • How are you self employed (Ltd company, sole trader or via Umbrella company) if its via a company why cannot you manage your tax by paying dividends over say 2 years
    – Pepone
    Commented May 6, 2015 at 22:51

1 Answer 1

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For income tax, you can expect to pay (see here for the rates):

  • 0 on the first 7475 (personal allowance)
  • 7000 on the next 35000 (20% band)
  • 3010 on the rest - 7525 (40% band)

For class 4 NICs, it should be (see here for the rates):

  • 0 on the first 7225 (lower profits limit)
  • 3172.50 on the next 35250 (9% between lower and upper profits limit)
  • 150.50 on the rest - 7525 (2% above upper profits limit)

So expected take-home is £36667.

You can avoid the income tax - but not the NICs - by putting money into a pension. For example you might put £7525 in to eliminate the entire 40% part of the bill, which would only cost you £4515 from your take-home pay because it would reduce the tax bill by the £3010.

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